When you are ready to buy a home, the first step is to get approved for a mortgage. This can feel daunting, but there are some things that you should have in place before applying. When you are ready to buy a home, there are a few things that you will need in place before you apply for a mortgage. When applying, it is important to have your credit score and debt-to-income ratio in good shape. If your credit score is less than 720 or if the difference between your income and expenses exceeds 36%, then it will be difficult for you to get approval from the lender. Another thing that is necessary when applying for a mortgage is an appraisal of the property in question. You may also want to consider getting prequalified by having a loan officer run some numbers on possible scenarios, but this isn’t required at all! To help make this process easier, we’ve created this list of 3 items that need to be taken care of. Whether it’s your credit score or your emergency fund, these three steps will ensure that you’re eligible for the best rates possible!
1. Make sure your credit is ready.
The best interest rates aren’t going to come around unless you have a stellar credit score. Your credit report is one of the most important factors if you want to make sure that you get approved for the best rates. As such, it’s best to check all three (TransUnion, Equifax, and Experian) for at least six months before applying for a mortgage. You can do this through AnnualCreditReport.com or by pulling copies of your reports directly from each bureau if you prefer not to share your personal information online.
2. Know where your money will come from.
If there isn’t enough money in your bank account to put 20% down on the house, then securing a mortgage becomes difficult because lenders won’t want to take a risk on you. To measure this, lenders will calculate your debt-to-income ratio which shows them how much money is going out in the form of mortgage payments, insurance, and property taxes among other categories, divided by how much money is coming in that same period. The higher this calculation comes in compared to your income, the easier it is for you to get approved for a loan!
3. Get ready with official documents.
To apply for a loan when you find the right house, you’ll need specific documents from your employer or current financial institutions. This includes recent pay stubs as well as account information showing the previous two years of tax returns. You should not forget about checking with your mortgage broker to see what else might be needed along the way. With all of these documents ready and at hand, you can move forward with confidence when you’re sitting across from a mortgage lender and know that your application is in good hands.