Before Applying For A Mortgage
It's The Biggest Financial Step So Far
It almost goes without saying that the biggest single financial transaction a person makes is buying a home and taking on a mortgage. Before you even walk through the door of a financial institution to secure a loan for the purchase, there are a few things you can do in order to present your case favorably to the lender. A steady job, savings and investments, and a good repayment record for previous purchases on credit are all important aspects of your presentation.
We are offering some ideas on how you can best be prepared for a positive response from the lender for your mortgage. By following these hints, you can be ready for any questions asked of you and your presentation will be effective.
Obtain A Copy Of Your Credit Report
First, take advantage of the fact that you can obtain a free copy of your credit report from any one of the three major credit agencies every year. Equifax, TransUnion, and Experian are all happy to provide you with the information you need. Go over the report with a critical eye to review it for any errors that may have been made. If you find an error or errors, the credit agency provides instructions to help you dispute the errors and have the report corrected.
Keep Up With Payments And Show Stability
If you have outstanding debt, be sure to maintain payments consistently and keep the balances low. Your character assessment is enhanced by this basic discipline. To avoid the idea that your behavior is erratic or unusual, do not close out or open up new credit card accounts prior to applying for a mortgage. Doing so just creates the need for an explanation to the lender as to what is happening. The same goes for changing jobs. Taking a different job or quitting the one you currently have is not advised prior to applying for a mortgage. The lender is looking for stability and a job change, even if it would be a good move, looks unstable on your application.
Save, Save, Save
Try to have a good sum of money saved for a down payment. The larger the down payment, the less you have to borrow. Lenders look favorably upon people who are able to save adequately for a good down payment on their home. On the same note, have some money set aside to deal with the other costs of buying a home, such as closing costs, repairs and inspections.
Interest Rates Are Important
Keep your eye on the interest rates because they tend to fluctuate. If you find the rates dip considerably and you are just about ready to apply for your mortgage, ask the lender about the feasibility of locking in the lower interest rate. Your payments are affected by how much you borrow and the interest rate, so it is in your favor to have a lower interest rate if possible.
Figure Out Your DTI Ratio
Before seeing the lender, calculate the debt-to-income ratio of your potential mortgage. The lender will calculate the percentage based on a front-end ratio-meaning the monthly expense for housing is divided by the monthly income. Traditionally, this should be around 28 percent in the US. A back-end ratio divides all expenses by total income rather than just housing costs. The percentage for this DTI ratio is 36 percent.
Once you have done all of your homework in terms of having all of the necessary paperwork to support your request for a loan, then research the lending market for the best lender for your needs. If this is your first house, then you will often find special opportunities for first-time buyers. If the house you are looking for is a "handyman special," then you'll also be able to find special financing for that type of project.
