Are you prepared for a mortgage loan? Over the past few decades, the world of mortgages has changed a lot. It used to be easy to secure a mortgage loan, even with almost no money down, but interest rates were very high, even hitting a whopping 16% in the ’80s. It’s much more difficult to secure a loan today and you’re expected to put down at least 20%, but interest rates are lower than ever.
Preparing to take on a massive mortgage-like obligation means more than just raising your credit score. You want to be emotionally prepared to take on a loan that is theoretically part of the next 30 years of your life, not only do you want to make yourself an attractive borrower. That’s not supposed to stop you from buying a dream home, but it’s important to be prepared.
Preparation for Mortgages
Here are several tips to make sure you qualify for a loan and that you are able to bear this obligation.
See your Credit Report.
The first thing lenders can look at is your credit report, and so should you. But when so many credit inquiries arise at once, your credit score takes a small ding, if you have not been monitoring it regularly, make sure you check it. Make sure there are no inaccuracies and search before you apply for a loan to see if there are any debts you can fix.
Settle some of your debt
As a borrower, open lines of credit help you build your reliability, however, you want as little debt as possible when you’re ready to apply for a mortgage. It is necessary to trim back all of those credit card deals you accepted in college. Settle down your credit card balances, student debt, and car loans. The less money you owe, the more likely you are to get accepted and get a reasonable rate at the time you apply for a mortgage.
Keep off on financing big buys.
Similarly, the time to take on some new debt is certainly not now. One of the factors deciding whether or not you would be accepted for a loan is your debt-to-income ratio. Ideally, lenders want to see that 36 percent of your revenue is below your monthly debt payments. Your debt-to-income ratio would be negatively affected by financing any major purchases or opening new lines of credit which could make a difference in getting accepted.
Make sure to pay your bills on time.
If you do not already have a long history of on-time payments, you need to immediately start to build that history. To guarantee that your payments are not even a day late, do what you have to do. As soon as you get them, pay online, set up automatic payments, and pay any bills. Lenders have much tighter late payment policies, and not only will your credit score be affected by a history of late payments, but you will also be deemed high risk, even though you have never fully skipped a payment.
Do your research
Take the time to explore how debt works, what APRs are, how points impact your rate, the discrepancies between mortgages at fixed and adjustable rates, and some other details on what governs interest rates and how the market functions. When you select a lender and understand developments in the lending industry, understanding the economy outside your mortgage will help you to make a more informed decision so that you are a more informed consumer.
Talk to the lenders
Equipped with the knowledge of your business, shop around for a mortgage. You may be given different rates by various banks, and often a lower rate is not always the best mortgage for you. If you find a lender that you would like to partner with, get the ball rolling after you’ve talked to a few brokers and heard about what they deliver. Even if you are not ready to apply for a mortgage yet, it can be helpful to build a partnership with a potential lender. He or she will share some tips on where to improve your credit.
Don’t switch to a new job just yet.
Hold off for now if you’re worried about a job or career transition. It makes you a more attractive borrower to see reliable, steady work history. But when you are about to take on a new mortgage, it is also usually easier to have as little friction in your life as possible. The money will come and go, new costs will occur with the purchase of a home, and now is not the ideal time to make other enormous changes in life. Feel free to make some major improvements once the dust has settled.
We hope that these ways to prepare for mortgages help you in the future. If you need assistance or need to secure a loan, give us a call.