Check these six steps before you venture out to your mortgage broker and you’ll be ahead of the game!
Start with your credit report
The first thing lenders will probably do when you apply for a mortgage loan is to check your credit; you should, too. There’s no better time for regular credit monitoring than when you’re trying to prove your creditworthiness to a lender so you can get the best possible rates. You want to make sure that your credit report is as accurate as possible, your scores are where you want them to be, and no one else is getting access to your credit, possibly harming your scores.
Then, get things in order Once you’ve been keeping regular tabs on your credit report, you’ll be able to see how you’re doing. Report any inaccuracies and get everything cleared up. If your debt-to-credit ratio is too high, monitoring your score over time will show you how your score might change. If you see accounts that you didn’t open or addresses that aren’t yours, take immediate steps to investigate what could be identity fraud.
Do your homework
Yes, the word "homework" makes us shudder too, but this time the reward is much bigger than memorizing geometry theorems or the periodic table. You’re finding a home but you’re also making a financial commitment you’ll have to live with for years: get the best deal you can. Research loans, rates and brokers exhaustively before you sign or commit to anything. Doing the hard work now will pay off down the road with a better rate and terms.
Be realistic about what you can afford
Buying a home may be your dream, but keep one foot on the ground, too. For example, if you’re looking for a rate that will require you to come up with a 20% down payment and you only have about 5%, figure your calculations based on the rate you’ll be able to get.
Understand how lenders operate
Your credit score, which serves as a reference to lenders when they make their decision about your loan amounts and rates, is a reflection of their confidence in your ability to repay them. In a nutshell, the higher your credit score is, the easier it will be to get the amount and rate you want.
Decide how you’ll finance it
Once you research the types of financing available, determine which is best for your financial situation when buying a home: 15-year mortgage or 30, adjustable or fixed. If you are looking for security and a guarantee that payments won’t increase, a fixed rate mortgage might be the way to go. If you believe mortgage rates could still fluctuate and you want more flexibility, consider an adjustable rate mortgage. Now that you know more about how to prepare for a mortgage, get your Credit Report and Score.