Buying a new home is one of the biggest investments you will ever make. It is therefore essential you do not rush into a mortgage. Anyone wanting to take the first step onto the property ladder must make an informed choice. Find out how to prepare for a mortgage.
- Find a Mortgage That Makes Financial Sense
Only ever take out a mortgage that makes financial sense for you. It is important to compare the market so you are 100% sure you are making the right decision. For example, you should compare an FHA VA conventional or jumbo mortgage rate. You will then identify the best option to suit your budget.
- Decrease the Debt-to-Income Ratio
A lender will carefully review your debt-to-income ratio when deciding whether to accept or reject your mortgage application. They will, therefore, review whether you can manage the debt with your monthly income, which will also be alongside the monthly mortgage fees.
If you are hoping to buy a house in the future, we recommend reducing your debt as much as possible. Try to lower your credit card balance and consider consolidating your debt into smaller monthly repayments.
- Understand Student Loans
Up to 60% of first-time buyers have stated that student loans have delayed the mortgage process. However, you might be happy to learn that student loans may not prevent you from being accepted for a mortgage. A lender will take your student debt into account, in the same way, they would with any other debt. However, it more than likely will not hurt your application if it was used responsibly.
- Stop Applying for Credit
Applying for too many loans or credit cards can play havoc with your credit score, which may stop you from being accepted for a mortgage. If you are applying for a mortgage soon, we suggest holding off on applying for different forms of credit at least six to 12 months before your application. Too many credit applications can be a warning sign to lenders, as you may appear desperate to borrow money.
- Improve Your Credit Knowledge
One FTC study found that 25% of consumers have an error on their credit report, which may, unfortunately, impact their credit score and, as a result, may affect their ability to get a mortgage. While it is possible to be accepted for a mortgage, you might have to pay more than you need to due to a higher rate. That is why it is important to identify any areas for improvement, which could help you develop a good credit score so you can receive a good mortgage rate. One effective tactic is to increase your credit limit to give a much-needed boost to a credit score before you apply for a mortgage.
You wouldn’t accept the first property you find, so do not accept the first mortgage lender and rate you discover. Make an informed choice by learning more about your credit situation, decreasing your debt and finding the right mortgage type for your finances.