What to Know Before Applying For a Mortgage

Buying a house might be an exciting proposition but there are a lot of things to worry about which could dull the whole process. You’ll need to get preapproved for the mortgage even before you can think about house hunting. Getting the right mortgage lender is crucial since you’ll be working with them for the long-term. In order to get a loan that has favorable terms, there are some steps that you’ll need to take and we’re going to highlight some of them.

Identify What You Need

Most lenders will have standard packages that might not be ideal for your needs. Before you can go out to look for a mortgage, you first have to identify your needs before anything else. The lenders will also require some details from your end. You must have the tax filings for the last two years before you can be considered for a mortgage. You’ll also need to have bank statements for the last three months.

Know How Much You Can Afford

It is easy to be carried away when house hunting. Before you can decide to go out for shopping, it is important to know much you can afford when it comes to a house. There is no need for finding the perfect house only to come to realize that you can’t afford it. You’ll also need how much you can spend on a given month when it comes to mortgage repayment.

Understand the Market

In some situations, there are some types of loans that will depend on the prevailing market conditions. There are states like Florida where a host of condominium financing has been a big problem.  The lenders have to be strict. This means that you will obviously have to go through a lot of checks before you can be approved for a mortgage. The variance will be different in states. The prevailing market conditions will definitely have a say on the interest rates that you get.

Improve Your Credit Score

You should make sure that you’re improving your credit score before you can apply for a mortgage. Your credit score will play a big role in determining if you’ll be approved for the loan. That is why it is crucial that you’re raising it before you can even think of getting a mortgage. The first thing you’ll need to do is to know your credit score. Once that is done, you’ll want to make sure that there are no errors that could adversely affect your credit ratings. The second thing is to determine the balances that you can easily pay off which will increase your credit score. You should not apply for a mortgage when you have a big debt that needs to be settled. This brings us to the next point.

Pay Off the Debts

It can be challenging trying to pay for the mortgage when you’re in debt. You need to make sure that the big debts are settled before you can start looking for a lender for the purchase of your home. There is no lender that will want to work with you when more than 36% of your gross income is dedicated to settling debts. You can lower the ratio by clearing off car and credit card debts. There are lenders like Harbor View Funding that can advise on the best approach to take to ensure that you’re taking the best approach with the situation.

Have Your Taxes in Order

Most potential lenders will want to know about your tax status before the loan can be approved. You’ll be required to sign a lease which gives the lender the right to verify your tax details with the IRS. It will almost be impossible to get a mortgage approved if you’ve not been filing tax returns in the last two years. The documents that you provide must match the details provided with the IRS.

Don’t Make Big Purchases

You should never make a big purchase just when you’re about to get a mortgage. This is because the purchase could interfere with the credit score. The lenders will also be looking at cash purchases. They want to make sure that there is nothing jeopardizing the chances of paying back the loan. Even if you’re thinking about buying essential items for the new home, you should only do so when the loan has been approved and you’ve started the repayment process. Working with the right lender will save you a lot of trouble when you’re buying a home.