Wednesday, March 22, 2023

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10 things to do before applying for a home loan

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I just wrote that you should Look for a home loan before searching for a property to buy. because unless you have a lot of cash You have to borrow money

Now let’s talk about what you should do before applying for a mortgage to avoid common setbacks that might discourage you.

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Preparation is paramount when applying for a home loan. And you don’t get a second chance to make a first impression.

Get these details right the first time and your mortgage experience should be much smoother.

1. Rent the place first.

Although it may sound absurd. Before buying a house or condo It’s a smart move for a number of reasons.

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First of all, it shows you directly what owns a house. If something breaks or goes wrong while renting You can call the property management company or landlord for help.

When it’s your own place You can fix it yourself or pay for a professional to help you.

In addition, if you rent before you will be less likely payment shockThat is, when your monthly accommodation payments increase exponentially.

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Mortgage lenders like applicants have shown in the past that they can handle large housing payments to ensure they don’t default for that reason.

So renting will make you both a more knowledgeable landlord and a better mortgage candidate.

be it Completely allowed to live at your parents’ house. before you apply for a mortgage as well. At least in terms of features.

2. Check your credit score and report.

The most cliche advice ever. Yes, but it makes sense. It’s important if not. The most important thing in home loan approval..

It also takes a lot of time to resolve credit-related issues. So it’s not a last minute activity if you want to be successful.

Nowadays, it’s super easy to check your credit score and report for free with services like Credit Karma or Credit Sesame. Many banks and credit card issuers offer free credit scores as well.

Just taking the time to register and check your credit can make or break you when it comes time to apply for a mortgage.

It may also save you a lot of money. This is because higher credit scores are often rewarded with lower mortgage rates. This equates to lower monthly payments and significant interest savings.

If your score is not good Resolve them immediately so that you’re in excellent standing (780+ FICO) when it’s time to apply.

3. Pay off your debts.

likewise Knowing how much debt you owe along with the relevant minimum payment. can play a huge role in mortgage approval.

Simply put, the less debt you have, the more debt you have. You will be able to pay more according to the salary you set.otherwise all equal

In fact, paying off debt before applying for a mortgage is a win-win for both parties. Because it will increase your purchasing power and possibly increase your credit score at the same time.

The result may be more purchasing power due to lower mortgage rates This reduces the payment burden and increases affordability.

To find out how much debt you have Grab a copy of your credit report and include all minimum monthly payments.

These things eat into your affordability. Therefore, eliminating or reducing the balance can help allocate more money for future mortgages.

4. Stop spending

in the credit kingdom Avoid unnecessary swiping. (or now dip/tap) weeks and months before applying for a home loan can have a big impact.

First of all, your credit score may drop as a result of more outstanding credit card debt. It would be silly to buy small or medium sized items that would endanger your big house purchase.

Second, new debt could eat into you. DTI ratiotherefore limiting what you can pay Even if you pay off your credit card in full each month.

in other words It may be best to wait and make your purchase later in the month. When your mortgage runs out

This is also true during the home loan process – don’t go shopping for furniture until the mortgage has passed the finish line. Make sure the ink is dry!

5. Organize your belongings.

Now let’s talk about assets. which is of secondary importance to credit

Ultimately, you’ll need them for the down payment, closing costs, and reserves. The latter shows the lender that you have money left over. or reserves if the situation changes

But one must have is these money. And another thing is recording.

You will typically be asked to specify The last 2 months of bank statements to show the lender a savings model

to make life easier It may be wise to deposit all necessary funds into one specific account more than two months in advance of application.

that way money will be adept and there will be no need for explanatory letter If money keeps coming in and out of the account

An ideal situation might be a savings account with all the necessary funds to close. and there was little or no activity on that account in the last 90 days

6. Think of the Red Flag

Asset issues are often red flags for credit underwriters. They don’t like to see the money they just deposited into your account. Because they need to find the source of that money. Then consider whether the money qualifies or not.

as well as the last big deposit They need to know it’s your money. Not a gift or a loan from someone else. Because technically it won’t. yours money.

Think like an underwriter here. Make sure the assets are on your own account. (Not that of a spouse or parent) in advance and appropriate according to what you do for a living/earning.

Carefully review your work history. Have you been in the same job or line of work for at least two years? Is it stable? Have there been any recent changes?

Is there anything strange going on with your finances? if so Please contact them personally before the lender takes action. Address all bugs before giving your keyfile to the distribution manager.

and don’t be afraid to get pre-qual or pre-approval just to see where you stand You can be viewed by experts for free with no obligation to use them when you actually sign up.

7. Decide on the type of loan yourself.

I see it all the time – usually loan officers or brokers will give borrowers a specific type of loan without asking how much they want.

Not everyone wants or needs 30 year fixed mortgageAlthough this is far from the most popular credit program.

An adjustable-rate mortgage might be right for you. Or maybe it’s fixed for 15 years. Same goes for. FHA vs. Traditional Loans.

whatever it is Do your own research before stakeholders get involved.

This ensures a more neutral choice. It’s not just blind, generic, or biased choices.

8. How long do you think you’ll be in the house?

in this same line Try setting your expected tenure in advance.

If you know or have a good idea of ​​how long you will keep your property. It may be an important factor in choosing a loan.

For example, if you know you’ve just bought an initial home. And have a pretty solid plan to move in 5 years or less. 5/1 adjustable rate mortgage Probably a better choice than 30-year fixed.

It can save you a lot of money. Some of which can be used as a down payment for your moving-up property.

On the other hand, if you miss home forever. It makes sense to get a permanent loan through a fixed-rate product.

and also pay point mortgage to achieve lower rates that you will enjoy for decades to come.

Take this question seriously. If you sell or refinance shortly after purchase You might be leaving a lot of money on the table.

9. Understand Mortgage Rates

This one drives me crazy. Everyone just advertises interest rates without explanation. Where did they come with them? Why are they different? Why are they moving up and down?

These are all important questions that you should have answers to. Of course, you don’t have to be an expert as they are quite complex. But requires a basic understanding.

This may affect the type of loan you choose. When you decide to lock in your mortgage rateand if you agree to pay discount points.

If you just compare interest rates from other lenders. Maybe you should take the time to understand the basics better while you were there

This can help in negotiating rates as well, as an informed borrower who knows. mortgage jargon It will be easier to make a case if they feel they have been charged too much.

10. Check out the reviews. Get referrals and shop

Finally, check out the lender carefully first. not after applying

Once you have applied Shopping will be much more difficult. because you probably don’t want to “losing a place in line”

You may also lose your deposit if the lender charges the advance and you go elsewhere.

Applying elsewhere is much more difficult when you give someone all your financial information and sign a lot of disclosure documents.

Whenever you buy a TV or a car or even a toaster You may spend some time researching and comparing prices.

You don’t just go to a Best Buy store or a car and shop that day.

With a mortgage, it’s even more important to set aside time since it’s a huge expense. And it’s something that sticks with you for much longer. Try another 360 months.

If you walk in the wrong way or miss out on buying a better price. You’ll feel bad every month. not just once

Keep in mind that real estate agents influence nearly half of homebuyers’ lender choices. Wouldn’t you like to choose for yourself?

(photograph: Javi Sanchez de la viña)

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