Hold Off On Opening New Accounts
If youre looking for a new home, theres a good chance youre going to be looking to furnish and decorate it as well. While that furniture sale and 5% discount on all purchases credit offer may look good at the moment, its best to put off opening any new credit accounts or lines of credit until your loan is closed.
Each loan includes different terms and conditions, and taking on more debt could impact the loan you receive or change one already in process.
Pay All Your Bills On Time
When applying for a home loan, its important you have a good credit history, which includes paying all your bills on time, every time. A late payment may negatively affect your credit score, and that can play a part in whether youre approved for financing and, ultimately, the rate and term you may receive.
Even after your home loan closes, its still important to pay your bills on time, as this could affect your ability to apply for future loans.
Things You Need To Know Before Getting A Mortgage
If you’re considering purchasing a home in the near future, then it’s wise to brush up on your mortgage knowledge. Learn about best practices when applying for a mortgage, what to look for when shopping for a mortgage, and what you can do with your mortgage after you’ve bought a home.
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Don’t Apply For New Credit Cards
Problem: Even if you currently have an excellent credit score and feel confident of your ability to qualify for more credit, resist applying for any credit cards for a period of three to six months before making a mortgage application. Even if you have already received pre-approval, avoid applying for new credit cards until after closing your home loan.
Not only does every credit inquiry ding your credit for a while, but any new lines of credit can hurt rather than help. Also, many lenders may view your application more favorably if you have small balances on a few cards and demonstrate verifiable payment history.
Solution: Keep a close watch on your spending habits if you want to better your chances of buying the home of your dreams. Beware of those tempting credit card offers at the checkout counter of your favorite department store or the offers that promise frequent flyer miles and gifts for transferring balances.
Sure… you’d like to “save 10% today by applying” for that department store credit card. But opening new credit cards would be a BIG mistake! Avoid opening new credit cards before applying for a mortgage.
Loan Processing Takes Over
Time: 2-3 weeks
Every statement you made on your mortgage application goes under the microscope in this stage. Brace for questions and document requests. Responding promptly keeps everything moving forward.
You said you make $50,000 per year at Acme Software? The processor looks at your pay stubs and calls Acmes HR department to verify. You said your self-employment brings in $65,000 per year? The processor pulls your tax records to confirm.
Time: 24-48 hours
Your job now is to sit tight. If youre needed at all, it will be to answer more questions and produce more documents.
The underwriters job is to judge the risk of lending money to you on this property. Whats your loan-to-value ratio? Do you have the cash flow to make the monthly payments? How about your credit character? Whats your history of making payments on time? Is the home valued correctly, the condition good and title clear? Is it in a flood zone?
Select The Right Offer
Once you’ve filled out those mortgage applications and hear back from lenders, you’ll need to decide which lender to work with. When comparing your choices, don’t just automatically go with the lender that offers the lowest interest rate. Pay attention to closing costs, too. Closing costs are the fees you’ll pay to finalize a home loan, and they can vary by lender. It could be that one lender offers a lower interest rate on your mortgage but much higher closing costs than another.
Mortgage Tips: 10 Things To Know Before Applying For A Mortgage
Are you ready to buy a new home but concerned about financing it? If youre looking into mortgages and starting to feel nervous, youre not alone. Mortgages are a significant financial commitment and you want to make sure that youve evaluated all options before signing on the dotted line.
When youre ready to level up with a new home, keep reading to learn 10 mortgage tips that you should keep in mind before applying!
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Choose A Lender And Commit
Time: 5 minutes
Youve compared lenders rates and fees. Now assess their responsiveness and trustworthiness. Think twice about anyone who makes you feel pressured, Burrage says. His advice: Go with someone you can trust.
Then contact the lender of your choice to say youre ready to proceed.
Most lenders will request money for a credit report and an appraisal .
There Are Many Different Mortgage Options Available
There are a variety of different mortgage options available to suit all lifestyles and budgets. A 30-year mortgage is the most popular, but your loan term could be as little as 10 years. Most mortgages have a fixed interest rate, which doesn’t change over the life of the loan. However, if you’re willing to accept a degree of risk, you might opt for a mortgage with an adjustable interest rate. These usually have much lower interest rates for a limited amount of time, but the interest rate could become much higher if interest rates rise.
Discuss your lifestyle and budget with your lender to determine which mortgage option works best for you.
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Things To Know Before Applying For A Home Loan
Whether youre applying for a home loan for the first time or youre an experienced buyer, there are some important things to keep in mind to ensure that your home buying process is simple. Here are some tips to help you feel confident when youre applying for a mortgage.
Check Your Credit Report
If youre borrowing a large chunk of money, lenders want toknow youre a good risk before they offer you theirs. To see most of what the lenderssee, youll want to check your credit report. You can get a free copy of yourcredit report from each of the major credit bureaus once per year by visiting AnnualCreditReport.com. From thatreport you can see which companies you owe money to, how much you owe, andwhether or not youre considered to be on time with your payments.
Around20% of credit reports have errors in them,either because of things like identity theft or because of more mundaneclerical errors in data entry. If you see errors in your reports, the bureaushave a process to allow you to challenge those errors to get them corrected. Bycorrecting errors before you applyfor your mortgage, you improve both your chances of getting that mortgage andgetting good terms on it.
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Figure Out How Much Of A Loan You Can Afford
To apply for a mortgage, you’ll need to decide how much you’re able to borrow. Generally speaking, your housing costs should not exceed 28% of your gross income, and applying to borrow more than that will hurt your chances of getting approved. Remember, there’s a danger to lenders in giving out money that won’t get repaid — so you’ll want to apply for an amount you can afford.
How To Prepare For Your Application
Before applying for a mortgage, contact the three main credit reference agencies and look at your credit reports. Make sure there is no incorrect information about you. You can do this online either through a paid subscription service or one of the free online services currently available.
You can check you credit score with one of the three main credit ratings agencies:
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Fill Out A Mortgage Application
Time: 45-60 minutes
Youve already researched lenders and gotten one or more preapprovals for a potential mortgage. Now that youve made an offer on a house, its time to choose the finalist that you will actually borrow the money from. Start by phoning lenders , visiting their offices or filling out their mortgage applications online. Easiest of all: Ask a representative to fill out the form while you supply information by phone or in person, says Carlos Miramontez, vice president of mortgage lending at Orange Countys Credit Union in California.
If you want to start online, and you get to the point where you need more information … or just want to talk with a live human being, the vast majority of lenders are set up to where you can channel switch.
If you want to start online, and you get to the point where you need more information … or just want to talk with a live human being, the vast majority of lenders are set up to where you can channel switch, says Mark Burrage, an executive director for USAA.
Mortgage applications roughly follow the format of this Uniform Residential Loan Application, with its five pages of questions regarding your finances, debts, assets, employment, the loan and the property. And your credit score wont suffer from submitting multiple applications as long as you submit them all within a 45-day window. You should always submit multiple applications so you can compare offers later.
The Loan Amount Can Be Altered
If you are lucky enough to get pre-approved for the mortgage, you should know that the stated amount isnt necessarily the amount that the bank will give you. This is because the lender usually gives you a rough estimate of the amount that you may be allowed to borrow. Therefore, avoid making huge offers on houses. It is wise to make an offer thats slightly lower than the pre-approved amount.
You should know the above things before you apply for a mortgage. This will increase your chances of a successful loan application. In any case, just make sure that you can pay 20% of the down payment upfront before applying for a mortgage.
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Update Any Errors On Your Credit File
Did you know you can now check your credit file for free to make sure there are no errors?
- Update your personal details, including your current address.
- Chase up any mistakes with the lender directly to apply a notice of correction.
- Should you have raised a complaint and you remain unhappy with their response you do have the right to escalate it to eh Financial Ob.
- Disassociate yourself from anyone you are no longer associated with. If they have a poor credit history this can reflect badly on you when you apply for a mortgage.
Manage Your Credit Well After The Holiday Period
New year is the time to pay down any existing debts and avoid taking on new ones. As tempting as the special offers in the New Year sales might be think again. Getting your own home might mean other things need to wait.
Lenders will look very closely at your credit file as they will want to make sure that you can meet your ongoing home loan repayments. So you want to make sure that your are paying all your bills on time and avoid being late with any repayments.
For more tips on how to keep your credit under control .
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There Are Extra Costs To Save For Besides A Deposit
Unfortunately there are lots of other costs other than the deposit which youll need to save up for.
Solicitor’s fees, a valuation fee, stamp duty and a surveyor’s report all need to be paid for as well as land registry fees. It all adds up. And if you’re moving into an apartment, you may need to pay several months of management fees upfront.
Its Not A Good Idea To Take Up More Debt
If you intend to apply for a mortgage, avoid taking more credit. Make your purchases using cash only and avoid using your credit card. This is because the lender may decline your mortgage application especially if you use more than 43% of your income to pay back your debts. The lender assumes that you are a risky borrower.
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Start With Your Credit Report
The first thing lenders will probably do when you apply for a mortgage loan is to check your credit you should, too. Theres no better time for regular credit monitoring than when youre trying to prove your creditworthiness to a lender so you can get the best possible rates. You want to make sure that your credit report is as accurate as possible, your scores are where you want them to be, and no one else is getting access to your credit, possibly harming your scores.
Stay In Touch With Your Lender And Respond When Needed
Once you decide to accept an offer for a mortgage, it could take weeks for that loan to close. That’s because your lender will need to process your application and verify your financial information via a process known as underwriting. Be sure to stay in contact with your lender to make sure things are moving along, and be prepared to provide additional documentation as needed. If you’re self employed, for example, you may need to take extra steps to provide proof of income. See our guide to self-employed mortgages for more information on this topic.
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Mortgage Prequalification And Mortgage Preapproval Aren’t The Same Thing
Mortgage prequalification and mortgage preapproval are steps most people take before making an offer on a house. However, they aren’t the same thing.
Being prequalified or conditionally approved for a mortgage is the best way to know how much you can borrow. A prequalification gives you an estimate of how much you can borrow based on your income, employment, credit and bank account information.
Preapproval comes from a lender who has analyzed your finances carefully. They’ll tell you how much you may be able to borrow and what your interest might be. Mortgage preapproval is usually done after prequalification, but before you find a home. Preapproval doesnt guarantee you’ll get a mortgage, but if all key factors stay the same it’s very likely.
Determine What You Can Afford
One of the primary things that you need to know before applying for a mortgage is the amount that you can afford to pay for the house that you are interested in.
In this case, you can even leverage an online calculator to help you calculate repayment amounts that you will need to settle monthly. In this way, you will have a good idea of the amount that you need to factor into your monthly budget once your mortgage is approved.
You should also try to get a figure of the loan amount that you qualify for. When you get in touch with a lender, they will likely provide you with a certain amount that you can borrow based on your debt-to-income ratio .
Your DTI is the amount of money that goes towards your debt monthly. Some lenders will only provide you with a meager amount for the reason that you should not be spending more than 28% of your income on your mortgage payments.
In parallel to this, you should not be spending more than 36% of your income in payment for your mortgage combined with all your other debts.
In this case, what you can do is improve your DTI. This is particularly true when you are told by the lender that you dont pre-qualify for a loan that is big enough to cover the amount that you have to pay for the house that you want.
To do so, you can find means to increase your income because you will most likely be eligible for a bigger loan if you make more money.
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Referral Fees Will Negatively Impact Your Application
When applying for a mortgage your lender will do a forensic-type audit on your current account for the previous three to six months. This is to ensure that youre managing your day-to-day spending properly. And one thing theyll be looking out for is any referral fees or unpaid item fees.
A referral fee is when a bank goes to take a payment from your account such as a direct debit or standing order, processes it, but there isnt enough money to cover the payment so your account goes into a negative balance or unauthorised overdraft. Referral fees can be as high as 5 per payment and are a common reason why peoples mortgage applications get rejected.
An unpaid item fee is when a bank goes to take out a direct debit or standing order from your account and there isnt enough money to cover the payment so it gets returned unpaid. The charge here can be up to 10 or more per payment.
With referral fees in particular people mightnt realise how serious the issue is: The bank still processed the direct debit and they got their money eventually, right? Well wrong. When it comes to applying for your mortgage any type of referral fees will act as a black mark against your application.
So in short, its really important to only spend what you have in the months leading up towards your application.