Essential Steps You Must Take When Applying For a Mortgage
Essential Steps You Must Take When Applying for a Mortgage
The mortgage process can be complex, but there are some basic guidelines you must follow to guarantee an effortless home buying experience. Knowing these essential steps ahead of time can save you thousands in the long run and help avoid common errors that could reduce your chances of approval.
Pre-Approval
The pre-approval process gives you an estimate of your mortgage amount and what lenders might offer you. Usually, this includes your credit score and income information. Furthermore, you may need to provide documentation demonstrating that all debts and assets are in good standing.
Experian’s free online credit monitoring service allows you to check your credit score for free. A higher credit score may make it easier to obtain a mortgage and qualify for a lower interest rate.
Your Credit Card and Debt-To-Income Ratio
When applying for a mortgage, having a low debt-to-income ratio is important. This ratio measures how much you owe on credit cards, auto loans and other obligations in comparison to your monthly income. Generally speaking, lenders prefer seeing this ratio at or below 28 percent of gross monthly income and no more than 36 percent overall.
Prior to applying for a mortgage, it’s essential that you pay off existing debts and avoid taking on new ones. Not only will this help achieve an optimal debt-to-income ratio (DTI), but it will also boost your chances of approval for the best possible mortgage terms available to you.
Your Mortgage Payment & Your Credit Score
The most influential factor when applying for a mortgage is your credit score. Raising it up to 620 or higher can increase the likelihood of approval and provide you with a lower mortgage rate.
Paying your bills on time will also boost your credit score. Lenders use a credit scoring model that takes into account factors like debt-to-income ratio, payment history and other elements when determining if you qualify for a mortgage.
Your Down Payment – Lenders often require a down payment to cover closing costs, though this amount can vary by lender. With conventional loans, you can put down as little as 3 percent; however, larger deposits may lead to lower interest rates.
You could also consider using a down payment assistance program to assist with your mortgage payment. These loans tend to be more flexible than conventional ones and could be an ideal choice if you have limited resources or are first-time homebuyer.
When applying for a mortgage, it’s essential to regularly check your credit score and report. Doing this gives you an accurate picture of your financial position and can let you know if your application has been denied.
