Whether purchasing your next home or seeking to refinance to more favorable terms, we know a LOT is at stake when you're ready to apply for a new mortgage.
We've worked with first time home-buyers, military veterans, FHA-qualifiers, all-cash buyers, and more. Throughout this process and in conjunction with working with some of the best lenders in the business, we've learned a few tips of the trade. Here are some of our top take-aways.
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Make sure your credit score and credit report are in good shape
Your credit score and credit reports are two of the most important factors related to your financial health since lenders use this to determine the interest rates you’ll qualify for when applying for any line of credit or loan.
Interest rates can make borrowing money even more expensive. The higher the rate, the more costly it will be to take on that loan or line of credit. The same idea rings true for mortgages as well.
As for your credit report, double check for any inaccuracies that may be bringing down your credit score and make sure everything looks right. Lenders will want to make sure your total debt isn’t significantly more than you can afford to manage before giving you a mortgage. Credit monitoring products like Experian (Free) can help you monitor your credit report.
Also, we advise not making any major purchases with debt - cars, large electronics, etc - within the few months prior to your home mortgage application, if possible.
2. If contemplating career changes, try to avoid within 12 months of your home mortgage application
Lenders like to see stability in your income source - and will ask for pay stubs going back a few months. We realize that job changes and professional growth are inevitable, and some changes are outside of your control...but for those you might be able to manage, try to avoid major changes throughout the mortgage application process and immediately before.
3. Know your budget - and don't forget to factor in closing costs.
It’s important to know how much you can actually afford to spend on a new home. Getting pre-approval from your lender can help you get a more accurate idea of how much of a loan you’ll qualify for and what your monthly payments could look like.
That said, keep in mind that this estimate doesn’t take into account your other financial obligations, such as assisting your family financially or other monthly payments that don’t show up on your credit report.
Don't forget you are also saving for your down payment and closing costs - which can add up to 2-5% of your loan amount. These include appraisal fees, underwriting fees, home inspection fees, credit check fees and title insurance and title search fees, among other fees.
4. Pay down existing debt, if you can manage.
Your debt-to-income ratio will be analyzed when you apply for a home loan, as lenders use this to determine whether or not you can actually afford to purchase a home. A general rule of thumb is your debt-to-income ratio cannot be more than 40% to qualify for a home purchase — and the lower this ratio is, the better.
One key way to lower this ratio is to pay down any debt you can including credit card debt, personal loans, student loan debt and any other lines of credit, including car loans.
Oh, and if you are in the market for a new mortgage, we'd be happy to share our trusted mortgage partner information with you :) Feel free to reach out to [email protected].