Applying for a loan is one of the first steps in purchasing a new home. It can be overwhelming with so many different options, but with some guidance, applying for a mortgage doesn’t have to be confusing. Check out this handy guide – Mortgage 101: Tips to Know Before Applying for a Mortgage – to help you feel more confident when applying for a mortgage.
Keep Your Finances in Check
Make sure you’re in a good position to apply for a mortgage loan by continuing to pay off existing loans and make those payments on time, keep your credit score up or take steps to improve it and 🚫 avoid large purchases. Doing this will help you keep a good credit score and shift your Debt-to-Income ratio in your favor.
Know Your Limit
Most lenders use the 28/36 rule, or the Debt-to-Income ratio, to calculate what a buyer can afford for their mortgage. The 28/36 rule simply states that your monthly mortgage payment shouldn’t be more than 28% of your post-tax income and your outstanding debts (mortgage, 🚗 car loans, student loans) shouldn’t be for more than 36% of your post-tax income. Online mortgage calculators can help you with real numbers using different scenarios and today’s mortgage rates.
Don’t Open New Accounts
It may be tempting to go ahead and take advantage of a new 💳 credit offer to furnish the new home will be purchasing, but opening new accounts right before or during the loan process can negatively affect the loan you receive or change one already in process. It’s best to wait until after you close on your home loan.
Don’t Close Existing Accounts
Everything on your credit report plays a role in your credit history. The longer your credit history, especially with 👍 good payment history, the better. Don’t close your existing accounts when applying for a home loan, even if they have a $0 balance.
Keeping steady employment history is important when getting ready to buy a home. Lenders are looking to make sure you have the stability and continuity of income to repay the loan.
Choosing the Right Lender
Choosing the right 🏦 lender takes some research. Each lender is different and offers different rates, charges, and loan options. Here are some things you’ll need to look for when choosing a lender:
- Loan options available
- Rates, points and fees for each loan option
- Reputation of the company
We’ve been working in real estate for years and can help guide you in the right direction. If you need a few suggestions, just let us know!
Gather Your Documents
Before applying for a loan, make sure you have all your 📄 documents in order. A lender will use these documents to get a comprehensive look at exactly how much home you can afford. Some of the documents you will need:
- W2s/tax returns
- Photo ID
- Your two most recent pay stubs
- Current and prior addresses
- Asset information (retirement funds, 401(k), stocks and bonds, other investments)
- Gift letters
Depending on your situation and the lender, you may need additional documents. So be sure to double check with your lender.
Interested in getting in touch with one of our preferred lenders to find out how much you pre-qualify for in today’s market? Contact us today!