How to Prepare to Apply for a Mortgage
When you decide to buy a home, there are a few things that you can do before getting into the home loan process to increase your chances of getting the loan that you want. These are simple steps that only require a bit of preparation. A good real estate agent at the Lake of the Ozarks will point you in the right direction to get started. Here is a great way to get the ball rolling.
Check your credit scores.
You should get a good look at your credit scores before the bank begins looking into them. Federal law allows you to receive a free copy of your credit report once a year from each of the three credit reporting companies: Experian, TransUnion, and Equifax. This allows you to check it for any inaccuracies that need to be corrected. Mistakes do happen, and you will want to give yourself 3-6 months before applying for a home loan to file a dispute and correct any problems you may find.
You will want to have at least three credit tradelines open. These are any combination of credit cards, student loans, car loans, etc... If you need to open more tradelines, apply for a major credit card. Get approval for it at least six months before you apply for a mortgage. Credit scores may temporarily lower when you open a new card. Also, do not close old cards that you don't use anymore. Those accounts are actually adding positive points to your credit score. Closing them lowers the amount of credit you have access to.
Lower your debt ratio.
When you apply for a home loan, your debt should be less than 30% of the maximum credit you are allowed. Pay down cards as much as possible. Another option is to ask your credit card companies to raise your current limit.
Don't move a lot of money around between multiple accounts right before a loan application. It should all stay put for at least three months or you could be in for a lot of extra paperwork and hassle.
Even after you have been approved for your loan, don't get excited and immediately make a lot of new purchases on your credit cards or make another large purchase that you need a loan for. If your debt ratio gets too high before the loan is closed, it could disqualify it.
Gather required information.
The bank will need proof of your income and other finances. It is wise to have all of these things gathered and ready before they ask for it. These include: proof of income (2 years of IRS filings if you are self-employed), bank accounts, 401k funds, and any other additional assets.
It is in your favor if you have been at your current job for several months, and the longer the better. While it is not required, it will help you tremendously to go in having an idea of what you spend on household expenses. This amount will let you know how much you can easily afford to pay back.
Get pre-approved.
Once you have taken care of everything listed above, get pre-approved for the loan that you want. A "pre-qualification" is only an estimate of what you can afford. A "pre-approval" means that the lender has already checked your credit and verified all of your documentation. This makes home-sellers much more comfortable that the sale will really happen.
A little preparation goes a long way. Once you decide to buy a new home, go through these steps first. By the time you find the house that you have been dreaming about, everything should be ready to fall into place. I would love to put you into a new home at the Lake of the Ozarks. If this is in your future, give me a call.
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