Getting a Mortgage: Here are 3 Things You Should Know Before Shopping
If you are planning to purchase a home in the next few years, it’s important you brush up on mortgage knowledge. Unless you have a cool half million lying around, you will probably need to get a mortgage to purchase the home! Here are three things you should know about applying and qualifying for a mortgage loan.
Start Early
You have the option of going to as many open houses as you would like, but you will never manage to purchase one without getting a mortgage. Therefore, it is critical you start doing things early by getting pre-approval before you even start hunting for a house. It’s not good to fall in love with a house only to find out later that you don’t qualify for it at its price point.
Fortunately, pre-approval does not take more than two days when you are working with a reputable lender. Plus, the pre-approval is valid for 90 days, after which you need to repeat the process if you have to.
While pre-qualification does not mean that you’ve been approved for financing, it offers you a rough estimate of what you can afford depending on your financial information. As you go for pre-qualification and pre-approval, you can also use financial tools like a mortgage calculator and amortization calc to see how much home you can actually afford.
Preparing Yourself
Before applying for the mortgage, make sure that you are in tip-top financial health. You need to step out on your best foot to get the best rates. This means that you need to pay attention to how you manage your credit.
If you are delinquent on student loans, store credit or car credit, you need to take care of the issues – or, you’ll simply be rejected. You need to get to a state where you are consistently bringing in an income for at least three years in a row. Plus, banks also want to see that you have some cash reserves as you apply for your mortgage.
Apart from showing that you have the ability to pay a down payment, lenders also want to see that you have enough to pay your mortgage in the event you lose your job after purchasing the house. Fortunately, this does not mean that they want to see a huge wad of cash in your savings account. The total amount can include balances that are in retirement accounts that you, hopefully, will not need to touch.
Get Your Paperwork Ready
Once you are ready to apply for your mortgage, including the pre-approval, you will need to gather a large number of financial documents. Depending on how organized – or disorganized – you are, this can be one of the most strenuous parts of purchasing a home.
Apart from filling out the loan application documents, you need to find and provide at least two tax returns and W-2 forms. You also need to provide proof of income, balances to and monthly payments to auto loans, student loans, and any other debts you have. Other documents you need to show include your current checking and savings accounts statements, investment account balances and proof of your current rent payments.
Conclusion
The process of getting a mortgage is relentless and selling your home is not as simple as breaking a tenant’s lease. You need to be realistic about the amount of home you can afford.
Over-extending on your home and not being sure of whether you can or cannot make mortgage payments can create more stress in a family. So, whatever you do, make sure you live within, or even below, your budget and stick to your commitment.
