What to Know Before You Apply for a Mortgage
House hunting has become a sport in areas where the economy is strong. Many more people browse than buy, but observers can often turn into potential buyers. Regardless of whether you’re casually looking, grabbing architectural and design inspiration, or actively searching for somewhere new to call home, you’ll want to have your financial information in order before you begin the mortgage application. Here are some helpful tips to set you up for a smooth and successful process. First step: Meet with your local Envision Bank mortgage lender and let the checklist ticking begin!
Know Your Mortgage Options
Mortgages come in many shapes and sizes, and the terms of your mortgage should be customized to meet your needs. Talk to several providers to learn about your options – it really does pay to read the fine print – and determine the exact structure that fits your financial situation. An Envision Bank mortgage loan officer is happy to review your individual goals and recommend suitable mortgage options.
It’s All in the Numbers
Lenders, like you, want to make sure you can afford the home you are trying to buy. A good rule of thumb is that your total expenses including your mortgage, property taxes, homeowner’s insurance, and other monthly debt payments like your auto loan and credit card payments should be less than 45% of your gross income. Though not set in stone, this ratio will give you a better sense of what you can borrow.
Know Your State’s Mortgage Rules
Every state has different mortgage rules and trends. For example, states with more bankruptcies may have stricter loan policies. Different mortgage providers may consider alternative income sources. It is important to sit down early with a mortgage loan officer to learn the exact qualifications for a mortgage loan in your city and state.
Preparing materials ahead of time will provide an excellent overview of your loan potential and hasten your loan application process. Most lenders will expect at least a month of pay stubs, two years of tax filings, three months of bank account statements, and any documentation about unusually large deposits or withdrawals. It may go without saying, but having your taxes in order, filed, and up to date is essential. Also, if you know you have had challenges in your credit history, be ready to share this information up front with the loan officer and explain the causes of any challenges you experienced.
Get Out of Debt Before Taking on a Mortgage
Ask yourself candidly if now is the right time to take on a mortgage. Think about your debt-to-income ratio. Does your monthly income barely keep pace with your monthly debt? Do you have high credit card debt that is going to cause future stress as unexpected home repairs come up? These are a couple of common obligations that suggest now may not be the best time to take out a home loan. However, lowering or eliminating your credit card debt as well as other financial obligations – those college loan payments, for example – are important early steps for setting up your finances for that dream home purchase when you are ready.
Speaking of Borrowing
Since a mortgage will likely be the biggest debt you take on in your lifetime, it’s always a good idea to eliminate other debt obligations. One way to avoid interest rates from other borrowing is to not borrow in the first place. This is not always possible but understanding how you plan to repay debt and over what time frame is an important financial discipline to adopt. Credit card balances can be tough to pay off in a timely manner if you only make the minimum payments monthly. Besides, each new credit application, or excessive balances, can have an adverse effect on your credit score and ultimately affect the interest rate you pay on your credit cards and for your mortgage. Try to avoid other credit applications for up to a year before applying for your mortgage. In general, a solid credit rating and lack of late or missed payments will help you obtain the best loan terms when you apply for your mortgage.
Know the Score
We all get inundated with offers to receive and monitor our credit scores. When you’re applying for a mortgage is one time when you definitely want to know your credit score. Don’t just take your score at face value – scrutiny is key. A recent Federal Trade Commission study indicated that errors occur on as many as 25% of score reports. Your credit score provides another important reason to meet with a loan officer at Envision Bank. The officer can help you understand ways to better manage your credit profile to improve your score.