Mortgage loan on your mind? According to Freddie Mac mortgage rates are the highest that they have been in 4 years. With that in mind if you have been considering purchasing a home. You may want to go ahead and pull the trigger. Because there is no sign that the Federal reserve will allow mortgage rates to come down anytime soon. Which means the longer you wait to get a loan and purchase your home. The more you are going to pay in the long run.
However, if you have done any kind of research towards venturing into home ownership. You know that the process is by no means the proverbial walk in the park. Finding the home is easy enough as well as finding someone to get your mortgage from. Yet the process still proves to be a major hurtle for many potential home buyers that may have not done their homework, causing them to miss key steps that could have greatly streamlined the process for them.
If you are serious about buying your first home and getting a mortgage that doesn’t have an astronomical rate. There are a few steps you should take long before you decide to put ink to paper on that loan application. While you can’t instantly fix your income or how long and how you have used your credit up until now. There are lots of other things you can do to put yourself in a more favorable position before applying for your mortgage. Now full disclosure, all these steps may not work for everyone. Some of them you may already be in the process of doing right now. However, worst case scenario by taking these steps. It will make you aware of issues that you may not have been aware of. Giving you the chance to fix them later down the road.
Keep an eye on your spending (Avoid new debt.)
One big mistake people make all the time when they apply for a mortgage and receive approval is think that the process is finished, and you are now “Guaranteed” a mortgage loan. This is false. In fact, until the lender has supplied the funding. Meaning the money is in your account. They will continue to monitor your spending to assess how much of a risk you really are. They may even continue to ask you to see your new bank statements each month until you complete the purchase of your home.
So, what this means for you is in short do not buy anything that is not necessary while you are trying to get your mortgage loan. So, don’t let new home fever whip you into a frenzy and run out and by that new car you have been thinking about. That trip to Fiji you are planning, it will have to wait. Don’t even make large cash purchases. Because even though it may not be a new debt that you are adding if your lender sees it they will more than likely not be happy about it and it could put a quick end to your chances of getting your mortgage loan.
Have your documents ready
Every lender out there generally has some basic documentation that will be required for them to even consider giving you a loan. And without them your chances are basically zip for securing your mortgage loan. You will undoubtedly need a minimum of a months’ worth of your most recent pay stubs for all buyers that will be listed on the loan, and at least two years of tax return documentation.
Also, do not be surprised when the lender wants to see no less than you last three months of bank statements. You will need to be ready to explain any unusually large withdrawals and deposits plus have documentation to back it up. So, if you recently helped a family member out by loaning them a few thousand dollars. This could be an issue if you are not able to secure documentation proving that is what happened and why.
File your taxes
Every lender is going to want to see a minimum of your last two years of federal tax returns to consider you for a mortgage loan. In some cases, they may even want to see more depending on your employment status. This will include the current tax year that you are applying for your mortgage loan. So do not drag your feet filling your taxes when you are applying for a mortgage loan.
Also, be aware that your lender will more than likely require you to sign a waiver that will allow them to verify your tax documents with the IRS. To ensure that the information that you have given them will match-up with what the Internal Revenue service has on file.
Know your financial limitations
Lenders are required to make sure they are not allowing you to bite off more than you can chew when it comes to getting a mortgage loan to purchase a new home. This is for their protection and yours. If you can’t afford the payment it will dramatically affect your credit and your chances of ever purchasing a home again and they will not get their money. Banks hate that.
So, most lenders use the 28/36 rule. Simply put your monthly payment can’t be more than 28% of your household gross monthly income and no more than 36% of your gross monthly income when you add in your primary expenses. Like car loans and other monthly installment payments that you are currently carrying debt on. This rule could be more or less enforced by your lender depending on your unique situation, but it can help you get an idea of where you stand before you start the process.
Get your credit score up
If you are serious about getting a mortgage, then I am sure you are already aware that your credit score is one of the most important determining factors when it comes to be approved for a mortgage loan. Your credit score will also determine what your mortgage rate will be. The higher your credit score the lower your mortgage rate will be. So, it is very important that you take steps immediately to raise your credit score.
It is also important to know what your credit score is with all three of the major credit bureaus (Equifax, Experian, and Transunion). This is important because depending on what debt you currently carry your score could be dramatically different between the three. There are a lot of different services that you can purchase that will give you this information. All three bureaus also offer a free credit report at least once a year. So, if you have not taken advantage of that you should.
Once you know your credit score, the next step is to take measures to improve it. First thing is to make sure that the debts showing on your credit are correct. It is not uncommon for the to be mistakes and miss reported information on any of your three reports. Which could affect your suitability to receive you mortgage loan from a lender.
Next paying off any debt balances that are accurate that could not be disputed will in most cases give your credit a nice boost. Other than this there are no other short-term solutions that will improve your credit. At this point all you can do is completely avoid any kind of credit check. Even getting a new cellphone contract will cause harm to your credit. Or opening new credit card accounts.
Learn your real estate market
The basic requirements to take out a mortgage loan are going to be different depending on where in the United States you are buying your property. This can even vary from city to city in the same state. For example, if you are buying a home in Detroit, MI you can get a mortgage loan with a lower average FICO and a much lower down payment. Where as if you live in San Francisco, CA your FICO score will have to on average be 50 points higher than if you live in Detroit and your down payment will have to be much higher.
Pay your outstanding debts
Your debt to income ratio is one of the key factors that any mortgage lender is going to look at vary closely before they decide to extend an offer for a mortgage loan. Remember in most cases your debt can not exceed more than 36% when you factor in how much you will be paying each month for your mortgage loan.
The fastest way to lower your debt is to payoff your credit cards, car loans, and any other revolving credit that you may have. This will cost you more money up front when you pay these debts, but it will dramatically improve your financial health and make you look way better to potential mortgage loan lenders.
By taking these steps you greatly improve your chances of receiving a mortgage loan offer from lenders. And more importantly you increase your chances of receiving a mortgage loan with a favorable rate that will not have you paying a ridiculous amount of interest to own your home or property in the future. Do you need help figuring out your mortgage situation? Leverage Mortgage has helped thousands of people just like you realize their dreams of owning a home. Get in contact with us today to receive more information.