Purchasing your own home may be one of the most exciting things in your lifetime. It may also be one of your most expensive purchases. Unless you have a pool full of cash, you’ll need to take out a mortgage to help finance the purchase. Applying for a mortgage can be tricky, especially if you’re doing it for the first time. Read on for some great tips.
Check Your Credit Report
The health of your credit plays an important part in getting a good home loan. Before you start the mortgage application process, take a step back and check your credit score first. Pull credit reports from Experian, Equifax, and TransUnion at least once yearly. Ensure that there are no errors; if there are a few, get them fixed.
Improve Your Credit Score
Unless your credit score is perfect, spend time getting it cleaned up. The best way to improve your score is to make your debt payments on time and in full. Payment history accounts for almost 35% of your credit score. The debt you owe in relation to the amount of credit extended to you contributes to another 30% of your credit. So, keep your debt as low as possible.
Calculate how Much You Can Afford
Before you think about your dream home, make sure you can afford it. Analyze your debt-to-income ratio and ensure that your income is enough for you to live comfortably once you start paying off your mortgage. If you’re confused, many calculators can help you run the numbers online.
Get Your Paperwork Together
Once your finances are on track, you can start the real work. Lenders need a lot of documentation as part of your mortgage approval process. That’s why you need to gather everything before you’re ready to apply. Keep your income verification, proof of assets, and list of liabilities ready. If you have outstanding debts, keep that paperwork ready too.
Consider Getting Pre-Approved
Reduce the pressures of home buying with mortgage pre-approval. When getting pre-approved, a lender will look at personal details such as your credit score, income, and assets to estimate how much you can borrow. Remember that getting pre-approved doesn’t always mean you’ll have the money in hand to buy a house.
