Buying your own home is one of the biggest expenses of one’s life. Therefore, one should know all about the mortgage process and to improve your odds of getting one, you need to know a few things:
Monthly Income and Debt Obligations
When you are preparing to apply for a mortgage, the first step is to jot down how much you earn per month and debt payments. If you have variable income or are self-employed, the underwriting procedure could be a bit more involved and require you to submit copies of your tax returns of last year. The lender might count the average of your last two year’s income.
Work Out What You Can Afford
28/36 rule is popular among most of the lenders which imply that your monthly payment on your mortgage shouldn’t be more than 28% of your gross income and your debt payments (car loans, potential mortgage or any other) shouldn’t be more than 36% of your gross income.
It is important that you before you speak with your mortgage office, you determine how much you can afford and how much you can pay comfortably – both of these are two different things.
Understand the Market you are Purchasing In
The market you are buying in determines the types of loans you can get. And the market conditions vary from state to state and sometimes even region to region. It is better that you get assistance from a professional real estate office so you can understand the lending standards. They might give you a piece of sound advice regarding real estate properties.
Check your Credit Score
You need to get both your credit score and history report before applying for a mortgage. You would also want to make sure that there are no errors or any events such as late payments. Your estimated FICO credit score should be at least 680 and better if it is more than 700. Less than this and you might need more time to better your credit card score or get a qualified cosigner before getting the mortgage approval. You must pay a higher mortgage rate the lower your credit score is.
In the months leading to your mortgage application, do not apply for new credit as it makes you look suspicious.
Get your Taxes Aligned
A potential lender would want to see your two years’ worth of federal taxes and, would ask you to sign a release which lets them verify your information with the IRS (Internal Revenue Service). You should have your taxes filed for the current year.
Do Not Make Any Big Purchases
A mortgage company would closely look at your finances even after your approval. The easiest way to ruin your chances of loan is to take more debt before the finalization of your mortgage. Even if it is something that you want to buy for the house say, furniture or any other equipment, avoid doing so unless you actually own the property.
Hope these tips have helped you in getting better of understanding mortgages.