Buying a home is one of the most thrilling moments you'll experience during your lifetime. It's also perhaps the most expensive one. Unless you've got a pool loaded with cash, a mortgage to help fund the purchase of a home will have to be taken out. Applying for a mortgage can be stressful, particularly if you're just starting out. Fortunately, you can ensure success by following these seven steps.
1. Evaluate Your Credit Reports
Before you delve into applying for a mortgage, it's wise to take a step back and evaluate your credit reports. The health of your credit has a huge role in securing a good deal on a home loan or even getting approval.
2. Improve Your Credit Score
Your credit reports exclude credit scores. However, the good news is that getting your credit score is free. For instance, several big credit card issuers offer your FICO score at no cost.
3. Calculate How Much House Is Affordable
Get an approximate figure for how much house you can afford to buy. This is with reference to your debt-to-income ratio or the full amount of your gross monthly income that's dedicated to paying the monthly debt.
4. Decide What Kind of Loan You Like
You'll need to examine your options to decide what kind of mortgage loan would be ideal for you. Some things to keep in mind include choosing a traditional or government-backed loan, fixed or variable interest rate, and the length of the term, i.e., shorter or longer.
5. Get Your Paperwork Together
Lenders need some documentation while approving mortgages, so it's best to collate everything up before applying. Here's what you'll need: verification of income, proof of assets, and a list of liabilities.
6. Shop for the Best Mortgage Rates
The mortgage interest rate you settle on will have a huge impact on your loan's total cost. Even a small change in a percentage point can accumulate to a big chunk of change over a period of time.
7. Consider Getting Preapproved
In the preapproval process, a lender will examine personal details like your income, credit score, and assets to estimate the amount that can be borrowed. This gives you a competitive advantage, as home sellers know there's a solid opportunity funding can be secured — and instantly.
