You have paid rent for years now, what do you have to show for it? Nothing
If you’re starting to dream about owning a house, now is a great time to make the leap. Interest rates are relatively low, and real estate prices haven’t started to spike yet. Before you apply for a mortgage, there are a few things you should know.
This is the down payment required of house buyers by the lender that will provide the mortgage. A lender will not typically lend 100 percent of the cost of a house. Lenders require buyers to make an equity contribution of a certain percentage of the purchase price, so the buyers have some ownership stake in the property. A house buyer should have his or her equity ready before the mortgage is approved. If you don’t have your equity ready now, this is the best time to start saving up your equity.
You have to review your credit profile by pulling credit reports from reporting agencies. Verify the accuracy of your credit information, and dispute incorrect items if needed before you apply for a mortgage because your lender will look at your previous credit report to determine your credit worthiness.
Lenders handle couples with different credit scores in a special way, if you are applying for a mortgage loan as a couple, the mortgage lender will check both of your credit reports and credit scores. They will review your debts, the length of your credit histories and current credit activities.
Paying bills late and too much debt can negatively impact a mortgage approval, plus influence the mortgage rate. However, some couples believe that they will receive a low interest rate as long as one person has excellent credit, but this isn’t always the case.
To ensure the best rate, both of you need to maintain good credit before applying for a loan. This includes paying bills on time, paying off debt and checking your credit reports for errors.
Eliminate Other Debt
Home buyer should know that a mortgage is their current debt load. In the excitement of wanting to have their first home, buyers often overlook where they currently stand with other financial obligations. Banks often want to avoid having the debt of a particular person surpass a certain percentage of their monthly income. This means that they will be closely scrutinizing any other debt, personal loans, car loans, etc. Lower your debt ratio by reducing the number of bills that appear on your credit report. Eliminating your previous loans and some of the small balances on your credit cards.
Establish Your Income
Income establishment is a key part in preparing to get a mortgage. Before a bank or other lending agent approves an individual for a Mortgage, they want to be sure that the person is going to be able to pay the loan back in full. For their own reassurance, the lending officer will typically examine the different streams of income of the Potential borrower/home buyer. If you are preparing to access a mortgage avoid job hopping in the months leading up to the loan application process. Holding down a job for several months, and preferably several years before applying, this will give the lending institution a good idea of how much money a borrower has that can potentially go towards repaying the loan.
They will investigate any paper trails, so it does not work to just transfer money into a savings account from a relative in the days or weeks leading up to the application. The assets in the bank should be established, getting your financial house in order is a key part in preparing to get a mortgage.