Financing a home can seem a bit overwhelming when you’re buying your first home or you're new to the process. Your real estate agent and your mortgage broker can help guide you through the mortgage application process.
There are some key do’s and don’ts in the mortgage process you can take to help pave the way to home loan approval.
Before you shop for a house or apply for a mortgage, it’s good to know these key do’s and don’ts to better your chances of getting a home mortgage.
Before you start shopping for a home, decide which mortgage lender you want to use and have them help you try to get pre-approved for a home loan. A pre-approval demonstrates to real estate agents and home sellers that you’re a serious buyer. It also determines the price range of homes you should look at, which are the ones you can reasonably afford.
Being pre-approved for a loan of up to a specific amount, doesn’t always mean you’d be wise to buy to that limit. You may want to consider other expenses and future plans for other purchases you have too.
You can start by using the guideline of only taking out a mortgage that is less than two- to two-and-a-half times their gross annual income, according to Investopedia.com. Keep in mind that’s just a guideline.
It’s easy to buy a house that turns out to be more work, and thus, more expensive than you’d anticipated. Ask specific questions during your home inspection, especially if you plan to do any renovations. If the inspection reveals potential issues, like a roof that needs work, you’d be wise to first get an accurate quote from a roofer.
Buying or building a new home can help you avoid unexpected, costly repairs that can add up quickly in older homes that have underlying issues.
Be sure to weigh other expenses that a home can have. Look into the property tax rate of the town and the homeowner’s insurance that you’ll need to obtain. Properties located in floodplains often require additional flood insurance that increases your cost.
It’s important for you to create your own budget and determine how much you can realistically afford to pay toward your mortgage each month.
When creating your budget, you’ll want to carefully weigh how those changes could affect your finances and what you can pay toward a mortgage. Take into account:
Even though you might plan to live in your new home for years or decades, chances are that you’ll want to sell it at some point. Most people do eventually sell. Consider the resale value that your home could have in the future.
Buying an affordably priced older home that you can gradually renovate and improve means you could profit off of it when it’s time to sell. However, buying a home that’s at the top of your budget that needs work could limit the renovations you’ll be able to afford. This could leave you with less or even no profit. Consider other factors that could make the house an appealing sale years from now, like if it’s in an up-and-coming neighborhood.
When you’re ready to apply for a mortgage, these do’s and don’ts can help guide you through the mortgage process steps.
When you apply for a mortgage, ask any questions that you have about the process. Before signing anything, be sure to have your loan officer clarify any items you don’t understand.
Your mortgage broker is there to help you. The more questions you ask now, the better prepared you’ll be for your closing.
When you apply for a mortgage, you’ll typically need to supply a lot of documents, including your:
Start gathering these documents ahead of time when you receive a mortgage application checklist for these items. You won’t have to hunt them down after your broker requests them.
Your broker will likely reach out to you later in the process with additional documentation requests. The better organized all of your paperwork is, the quicker the process will be.
Your job history and consistency are taken into account in getting mortgage approval. Avoid leaving your job, switching from full-time to part-time employment, or making other big career changes during or right before the mortgage application process.
Positive career changes, such as becoming a salaried employee or increasing your employment from part-time to full-time, shouldn’t negatively impact your mortgage application. If you expect positive changes like these to occur, mention them to your broker.
Your credit score can play a major role in your mortgage application approval. Don’t make any changes that could affect your credit score while your loan approval is pending.
These changes can include: