Getting a great loan, and an excellently low interest rate doesn’t just fall into your lap. It starts with small steps. Below are some great steps to follow that will help you land the house of your dreams…or at least a house!
Budget wisely! Knowing the type of home and mortgage you can afford is all about budgeting. Search around for the kind of home you want in your area and compare prices to get a ballpark figure. Figure out the following for creating your budget: your income, your monthly debt, your living expenses, and how much you have saved for a down payment.
Then you can look online at mortgage calculators to get an idea of what your monthly payments could be. Don’t take this too seriously, as it is an online tool generated by only numbers, and the bank looks at much more than that. Your mortgage shouldn’t exceed 40% of your monthly income.
Figure out what mortgage you want. The type of home you want and any assistance you need will decide what kind of loan you’re eligible for. This is why it is important to talk with the bank, so you can find out the various types of loans, what kinds interest you, and which one you’ll qualify for. Read: How to Get Pre-Approved for Your First Mortgage.
Decide if you want a mortgage broker, or a lender. There are two ways to find a loan: dealing directly with the lender or seeking help through a mortgage broker. If you go the solo route, you have to do all the legwork and shop for a loan, which includes going from lender to lender, comparing interest rates and other loan terms.
Check your credit score. Now’s the time to check your credit report for any mistakes. Please note, that this is something you should frequently be doing. There are too many free and secure websites that allow you to check your credit constantly for free. Of course, they are not completely accurate, but they are very close. By law, you can obtain one free credit report from each credit report company; TransUnion, Equifax and Experian, annually.
Gather all necessary documents. Your finances will be under the microscope, so make sure you have everything you need to back up the numbers. Have you opened a bank account in the past six months? Have been gifted any money recently? Be prepared to tell the lender why. These are the documents that you are going to be expected to bring with you: government identification, two years of your tax returns, two years of your income statements, and proof of all of your assets.
Lastly, you’ll need to get approved. While a pre-approval won’t guarantee you a loan, consider it a diploma of the mortgage process. During pre-approval, the lender will do a credit check and go over your income statements to determine your financial capability. A good rule of thumb is to try at least three lenders to ensure you get the best deal possible. See: How Much Can I Borrow? Home Affordability Calculator – myFICO