Applying for a mortgage is not that easy, but it’s even problematic when you’re uninformed on what to expect. If you’re pondering purchasing a home for the first time, you can simplify this process for yourself by grasping as much information as possible ahead of time before you’ve identified your dream home. Being informed on what to expect lets, you plan earlier and boost your prospects of getting a mortgage with friendly terms.
Here are prime things you need to do before applying for a mortgage so as to streamline the application process as much as possible.
- KNOW YOUR BUDGET
If you’re looking to get your mortgage application approved on your first attempt, it’s essential to know the size of the loan you can afford with ease. Lenders determine this by evaluating your debt-to-income ratio (DTI): the percentage of your earnings that go to paying debts every month, among other things.
Many lenders have two different rules regarding your DTI. First, it is good if you spend less than 28% of your earnings on your mortgage repayment. Second, your total debts, including the mortgage, shouldn’t take up over 36% of your earnings. To learn the actual amount, you can qualify for a mortgage and calculate your budget for a home, talk to a lender and request to be taken through a quick pre-qualification process.
- BETTER YOUR DEBT-TO-INCOME RATIO
During the pre-qualification, if the lender informs you that you only qualify for a small loan that isn’t enough to buy your dream house in your location, you can take the necessary measures to boost your DTI before starting searching for a home.
- SAVE UP FOR A DOWN PAYMENT
If you’re not indebted and can’t improve your earnings, your ideal option is to minimize the size of the loan you require. The simplest way to actualize this is to reduce your spending and save up for a sizeable down payment.
- IMPROVE YOUR CREDIT SCORE
When applying for a loan, having a good credit score is a big plus. A good credit score allows you to qualify for a bigger loan with favorable terms, which end up saving you a lot of money over the loan lifespan.
If your score is not that good, there are several ways to better it. Settling all your debts and bills in a timely manner will automatically improve your current score. It’s also helpful to stick to one account rather than opening others, as this may prompt a drop in your credit score.
