Buying a new home is one of the most exciting things that you can do. It will also be one of the most stressful moments of your life. If you want to get that mortgage approval without any headaches, here are some things that you need to do.
Stay On Top Of Your Credit
As you can imagine, your credit rating will be of major importance during the mortgage process. Before you even apply for a loan, you should pull a copy of your credit report from every bureau. This means Trans Union, Equifax and Experian. You are entitled to a free copy each year.
Pull these reports at least 3 months before you plan to apply for a loan. This will give you time to correct any errors if they exist.
Once you have your credit in order, stay on top of it by signing up for a few credit monitoring services. I recommend using a service like Credit Karma or Credit Sesame as well as Experian’s free monitoring service.
Don’t Switch Jobs
Thinking of changing careers or just moving to another company? Now is not the time to do so.
Above anything else, when shopping for a home loan, you want to show stability. If you are thinking of starting your own business or changing careers, wait until the ink dries on your home mortgage.
Have Plenty Of Cash On Hand
You are likely going to need a lot of cash to get your mortgage done, more than you might think.
If you will be using an FHA loan, you will need 3.5 percent down, at a minimum. This means that for a $200,000 mortgage, you would need $7000 as a down payment. More is always better with a down payment however and, with an FHA, there are benefits to putting at least 5 percent down. It will lower your mortgage insurance rate.
Beyond the down payment, you have many other costs that potential home owners often forget about. You will have appraisals, inspections and a variety of other fees that will likely need to come out of pocket. Expect there to be roughly 3 percent of the loan value in closing fees although you may be able to roll some of these into the loan or negotiate for the seller to pay them.
Bottom line, have as much cash as you can on hand. Cash solves a lot of problems.
Pay Off Your Revolving Debt
There are two reasons that you need to get that credit card debt under control before you apply for a mortgage.
First, you have the impact on your credit score. Credit utilization accounts for a full 30 percent of your score. To have good utilization, you need to get your debt below 30 percent of your available credit. To have excellent utilization, you need that amount to be under 10 percent. This is what you should be shooting for. If you have 5000 dollars in available credit, get the balance under 500 dollars.
The second way that your credit card debt affects you involves your debt to income ratio. Have too much debt and it will impact how much home you can afford. The monthly minimums on those credit cards will come off of the monthly payment that a lender feels you can afford. The higher your monthly minimums, the less house you get. It is as simple as that.
Understand How Much You Can Afford
You might have an idea in your head about how much you can afford, but your lender might have another idea. Before you do any home shopping, get pre-approved for a mortgage. Not pre-qualified, pre-approved. This will tell you exactly how much home you can afford.
By getting a pre-approval, you can make sure that you are shopping homes in your price range. It can help you avoid the disappointment that comes from falling in love with a home that you can not afford. It will also make your eventual offer to the seller a lot stronger.