A lot of people in today’s time look forward to home ownership. Renting comes to feel like you’re just kind of throwing your money away. I know me and my husband wanted to avoid renting at all costs so we could invest our money into something we could own. We were recently approved for our mortgage and bought our first house! We are currently waiting for everything to run through so we can close and move in! As of now our closing date is the day before Thanksgiving- so it should be a fun holiday weekend.
Thinking about it, some wouldn’t know how long it takes to get prepared for a house. It’s not always as easy as making the choice to buy, looking at homes you like, signing some papers, and then moving in. It requires a lot of strategy and takes some time to get done. We finally got it all done so I thought I would compile a list of everything we had to do to acquire our mortgage for those who may be wondering where to begin.
- Meet with a mortgage supplier: This could be a mortgage company devoted to mortgages or a bank. Set the date for about a year before the time you want to be buying the house. If you can’t go around the one year mark, go as as soon as possible, but a year is the best time because it gives you plenty of time for the rest of the steps. A banker or mortgage supplier can help you figure out which mortgage would be best for you. There are quite a few different mortgage options out there and they are not all, one size fits all. Everyone’s situation is different and you will want to get the best deal there is. If you meet with someone and they aren’t giving you the help you need- you can look for someone else. We met with two different suppliers and had we not met with the second supplier, we wouldn’t have a house right now. After finding out which mortgage fits you, you can usually research different banks and suppliers and see what kind of interest rates they offer on the particular mortgage. If you know a realtor or someone who knows the business- ask them for a recommendation of where to go, I know our realtor had a wonderful connection with the business that gave us our mortgage. Make a plan with them on how to prepare your situation for the best type of mortgage. You may need to start saving for a down payment for example.
- Check your credit score: There is a great chance the supplier you meet with, will run your credit and inform you of what it is and then tell you where you need to be in order to get the mortgage. Your credit score is a major (if not the most important) deciding factor in getting your mortgage, so pay attention.
- Fix any credit errors: There are many places online you can go and see the details of your credit report. You can get any of the top 3 credit agencies to run you a copy (you get one free copy a year), or there are other websites out there that you can get an estimate on your credit score for free. Keep in mind, a mortgage will usually be based off your middle score and that many free credit reporting sites give you their best guess or what is called your FAKO (not your FICO) score (their best guess). So don’t go off of them completely. They can vary sometimes by 40-100 points than what you actually have. Always go by what your mortgage supplier/bank tells you because that is the score that is going to matter. If you get your credit report and see anything that looks fishy or odd, call the credit reporting company to find out what you can do to get it removed. Credit report errors are very common and something a lot of people over look.
- Pay off your debts: Your debts matter for two major reasons: 1.) Credit Score and 2.) DTI (debt to income). The more debt you have, the lower your credit score is. The more debt you have, the higher your debt to income ratio is. If your debt to income ratio is too high, you will not be approved for a mortgage because so much of your funding goes to your other bills. Now with your credit, you do need SOME debt- enough to prove you are responsible enough to have debt and to manage it maturely. Usually good debt includes 2 credit cards or so, and/or loans. Whom ever is supplying your mortgage will be able to guide you on what you need to do if you need more debt and they will tell you if you need to get some debts down. Once you see what debts you need to pay off, it’s time to come up with a plan to pay these debts off. What I like to do is calculate the total amount of debt, divide it by the number amount of weeks (or every two weeks or monthly depending on how you often you get paid) there is until I want to be approved for my mortgage, and then that will give me the amount of money I need to put back each check/week in order to pay off the debt in the correct time frame. Then you just have to stick to that plan. The more weeks you miss your goal, the more weeks you are pushing back getting into your home. You are familiar with your financial situation so if you can’t pull off an amount weekly- it may be easier for you to pull it off monthly because you may have more money at certain times of the month.
- Protect your credit: Your credit is now your baby. You need to protect it with everything you have. There are many things that can harm your credit that you need to be aware of so you can prevent these things from happening. Some of these things include: having your credit ran (this occurs when you apply for any type of credit. A store credit card, a car loan, a secured credit card), adding more/new debt (unless your supplier advised it), being late on bill payments, etc. Always give your best effort to avoid any of these things while purchasing a home.
- Check back in with your mortgage supplier: Close to the time when you are ready to buy your home, check back in with your mortgage supplier. See how everything is lining up to the plan you guys created and if more steps need to be taken and if not, when is a good time to come in and apply for your loan and/or get a pre-approval letter to take with you when you meet with a realtor to purchase a home. Having a pre-approval lets you and your realtor know how much money you can afford to spend on a home and it will make putting an offer on a home much easier.
- Find a realtor: Once you’ve gotten through the mortgage process, find a realtor (google some reviews of good ones in your area and feel free to ask them questions), and them get to house shopping! Which is a whole new ball game I will be tackling later 😉 One step at a time.
Did anything else help you get approved for a mortgage that was not listed here? Feel free to share! 🙂