As many of you know, buying a home is not always as glamorous as it is cracked up to be. Home buying is not just one, but two transactions. The first is to obtain financing for a home, and the second is to find a home matching the financing that you qualify for. It can be an extremely confusing process, but by approaching it the right way, some extra planning can save a lot of trouble during the process, and money later down the line.
Mortgage first, house hunting second. You need to know what you have to spend before looking for the home. Otherwise, lots of time could be wasted on looking at homes that are out of reach or that will cause you to overspend in the future. Remain mindful that taxes, insurance, homeowner fees, repairs, appliances, maintenance, bank fees, and home improvements will soon be added into the mix. Today, we are going to explore the first part of the home buying process: obtaining a mortgage.
– Remain Mindful of Your Credit Score: First things first, if you are planning on purchasing a home, make sure you are allotting yourself ample amounts of time. The length of time that takes place between deciding that it’s time to buy and actually getting the keys to that home can be anywhere from months to years depending on a borrower’s financial situation. So before anything else, check your credit. The higher your credit score, the better mortgage rates that you are likely to receive. The lower the rate, the lower the monthly payment on the mortgage will be.
Credit Card companies such as Discover offer a free FICO score each month, and other companies are following their lead. Contact your Credit Card company to see if they provide this service. If not, simply pay for and obtain your credit score from http://www.myFICO.com, or sign up for one of their free 30 day trials of credit monitor and cancel it before the deal is over. Unless you are in an excellent credit score range (720 and up), leave 6-months to a year to clean up that score. To learn more about how much your FICO score affects the mortgage that you obtain, visit: http://www.myfico.com/helpcenter/mortgages/buying_a_home.aspx.
Pay down as much debt as you can, and don’t open or close any lines of credit. One may not think so, but closing a line of credit may appear to the credit agencies that this individual cannot handle having open lines of credit, and also lowers the borrowers access to cash. Applying for more credit on the other hand, makes a borrower appear that they don’t have enough cash flow to maintain their expenses.
Keep a debt-to-income ratio of 43% at the very most. The more debt that you have accumulated against you, the more your credit score is likely to take a hit. Credit scores of 640 may still qualify for a home loan, but their interest rates and/or closing costs may be higher with a lower credit score as a borrower with a lower score poses more risk to the lender as well as its’ investors.
Check your credit report and evaluate every single inch of it. Dispute any items that are false on your credit reports. Credit reports very frequently tend to have the wrong information on them, which can severely hurt your credit score. Make sure that your score is as high as it could possibly be before you try to obtain a mortgage loan. Read “Building a Better Credit Report” from the Federal Trade Commission to assist with this: https://www.consumer.ftc.gov/articles/pdf-0032-building-a-better-credit-report.pdf
Once you have obtained your credit score, go over it with a mortgage lender. Mortgage lenders are told by the credit company what the score could be and lets them know which actions the borrower needs to take in order to get it up.
–Compare notes with Multiple Lenders – By comparing notes between lenders, you will be able to determine the level of knowledge and helpfulness that the lender possesses, and you can also determine if you like their style of conducting business. Perhaps certain lenders suit your personality more than others. Also, different lenders can offer you different strategies and ideas on how to boost your credit score. To speak with one of our loan officers, call (714)464-2945.
-Document Your Finances: As a borrower, be prepared to provide for the following when applying for a loan: bank statements, tax returns, , employment verification, child support or alimony obligations, credit history, monthly payments on debt, W-2, investment accounts, and documentation for any other assets. Large deposits all must be explained as well, even if it is a gift from a family member. If it cannot be proven, the application process may be delayed. If you are self-employed, additional documentation will be required. For tips for self-employed applicants, read http://broadviewmortgageorange.com/requirements-purchase-home-never-stringent-especially-self-employed/
Lenders will use the information provided to judge the amount that you can afford to pay monthly on a mortgage while taking into account other mortgage costs such as home insurance, mortgage insurance, and property taxes, as well as how much income you have left after all costs are incurred. These factors will also play into the loan amount that you are eligible to receive.
–Get Preapproved: Have you ever received a mailer from a bank stating that you have been “prequalified” for a credit card or loan? Doesn’t it make you wonder how this is possible without providing a significant amount of your financial information? That is because getting preapproved entails a quick credit check on the individual. A Preapproval on the other hand means that all of the following has been verified: funds available, credit record, employment history, income, etc. Via a preapproval, the lender is committing to lending you up to a specific amount of money for your home. A pre-qual does not do this. Make sure that your lender does pre-approvals so that you can shop for homes within your price range.
-Don’t Get Overly Excited: Buying a new home is an incredibly stressful, yet also an incredibly exciting time in someone’s life. However, some get so excited that they decide to fully outfit their new homes in furniture and other interior decorating endeavors. Increased spending worries both lenders and investors alike. Keep your costs low before your loan closes to show lenders and investors that you have more savings/cash on hand, and less debt to face. After the loan closes, you will have more financial freedom, and you won’t have lenders or investors breathing down your neck. Stick it out for the time being.
Remember, first comes the mortgage, then comes the house. Try to save the excitement for once you actually get yourself in the home. Make sure you know how much you can afford when house hunting or else you might get yourself caught up in a house you can’t afford. That is how the whole mortgage crisis started in the first place.
-Lock in a Rate: Once your credit score is up to par, locking a rate is typically always a good decision. The reason being, if a borrower locks in a rate, and then that rate decreases, the borrower will most likely be able to renegotiate with the lender. However, if the opposite happens and a low rate is left “unlocked” the lender will not be able to renegotiate for the lower rate that occurred in the past. Rate locks are usually good for 30, 45, 60 days at a time. Check with your lender to verify how long locks may last for.
If you have any questions about the information herein, feel free to reach out to the Author, Brittany Williams, at Brittany.firstname.lastname@example.org. If you would like a quick preapproval Click Here, and for assistance with down payment or buyer assistance Click Here. You are also always free to give us a call Toll Free (855) 692-7623.