Being prepared going into the mortgage process can save you not only on your interest rate and your odds of being approved, but also your stress level! Here is a little overview of how to get ready!
Many people make the mistake of having their credit pulled multiple times when preparing to buy a house. When a mortgage broker has your credit pulled, it creates a hard inquiry which will usually decrease your credit score. We recommend you pull your own credit report prior to having it pulled by a lender. By doing so, your credit score will not decrease and you will have access to see everything that is helping or hurting your credit score. You can get a free copy of your credit directly from Transunion, Equifax, and Experian.
When you pull your credit, you might find some inaccuracies such as closed accounts being listed as open, incorrect balances, etc. Fixing these problems can take time, so it is important for you to start working on these prior to submitting your mortgage application. It may be a good idea to work with a credit repair specialist on this so you do not make a mistake and have this drawn out for months.
DTI stands for debt to income. This is an extremely important ratio used by lenders in your mortgage application. Paying down debt before submitting your mortgage application gives you a better debt to income ratio and usually improves your credit score (lower rates!).
If you have extra cash in your bank account after accounting for your down payment, moving costs, etc, then use the extra money to pay down debt. Having money in savings is good, but as long as you have enough, you should be using the extra to pay down debts BEFORE applying for a loan.
If you do not have enough money for your down payment and moving costs, you should not be buying a house. Plenty of agents will assist you in creative ways to get the down payment money to get you in a home. However, while it may be your dream to own a home, you should NOT buy a house if it is going to drain your bank account and put you at risk financially. Before you even bother applying for a mortgage and start shopping for houses, please make sure you are financially in the right place to buy a home.
Calculating What You Can Afford
The standard is to spend 30% or less of your income towards your housing needs. This means that your PITI (Principal, Interest, Taxes, Insurance) should be no more than 30% of your income. If your monthly mortgage payment would be $1,500/month, you should make at least $5,000/month. Keeping this in mind, if you can get approved for a mortgage on a house that will cost you $1,900/month, you probably should not do it. It is not about maxing out what you can buy, but about getting you into the right home for you.
Monitor Your Spending
A huge mistake that has cost countless would-be buyers a house is making big purchases prior to closing. If you go out and spend $10,000 on furniture and other things in the weeks leading to closing on your new home, be prepared for the consequences. Your debt to income will shoot up, your credit score will decrease, and the lender will sometimes reject your loan. Even if you have the cash in your account to pay off your recent credit card purchases, just wait until after the closing to make big purchases.
The most drawn out part of buying a home is generally getting all the paperwork together, a lot of which is required by the lender. We recommend having this paperwork ready ahead of time, otherwise your closing can be drawn out for weeks longer than you were quoted. Some of the standard documents to have prepared ahead of time are: pay stubs, tax returns, past few months bank statements, and government issued identification.
Before you start the process of buying your next home, choose with the expertise you make the process a breeze! Call today or fill out the form here to get in started.
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