Tuesday, June 25, 2024
HomeFinanceHow to Prepare Yourself to Take Out a Mortgage

How to Prepare Yourself to Take Out a Mortgage

Purchasing a home is one of the largest financial decisions you’ll make in your life, as well as one of the most time-consuming.

It’s vital that you come into the situation as prepared as possible. You don’t want to miss out on the home of your dreams when it comes on the market because you’re still scrambling to get your finances in order.

To best prepare yourself to take out a mortgage and start taking the steps to buying a house, here are a few things to consider.

Monitor Your Credit

When you’re ready to begin the process of buying a home, the first order of business is looking at your credit score. This, along with the amount of money you have, will be a big factor in determining whether a lender will be interested in working with you.

If your credit is less than perfect, now’s the time to start working on it. There are many ways to boost your credit score, such as taking advantage of programs like Experian Boost or putting lump sums into credit card debt.

You can also review your credit and dispute any issues that look fishy to you. Monitor your credit score with a free credit monitoring service that will only do a soft inquiry – remember, any hard inquiries will lower your credit score temporarily.

Assess Your Finances

While you work on your credit, you should begin to get your finances in order. Typically, your mortgage payments should be less than a third of your overall income.

Take a look at what you (and your partner, if you’re buying together) make monthly and see what you are able to realistically afford. Then, begin saving for your down payment and other closing costs.

The more money you’re able to give upfront, the less your monthly mortgage payments will be and the more appealing you may look. There are a lot of little costs that pop up along the way, such as home inspections, so be sure to save up more than you think you’ll need.

Gather Your Paperwork

Paychecks, checking account balances, IRAs – wherever you have your money, your mortgage lender will need to see it’s there in black and white. And, unfortunately, they will likely need to see it multiple times during the process.

When you are first pre-approved with your mortgage lender, they will look over all your finances and determine how much house you can afford. Then, when you do put in an offer on a home, they’ll go over your finances again.

This means sending official statements from your bank and other places you keep your money, as well as sending pay stubs to prove you have income. You can also try out the best mortgage calculator to save your money & estimate your monthly payments. 

Gather all this information now and store it in a secure place (or in a password-protected folder on your computer, if these items are digital).

The second a new paycheck is deposited in your account or when your bank releases your monthly statement, save a copy for your lender so you know where to find it in a pinch.

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