The home buying process is complicated and may even seem overwhelming at times, but at the end you’ll look back and say it was all worth it. We’re here to ensure that you’re prepared to jump into the home buying process with all of your ducks in a row, and with the best chances to qualify for a mortgage on the first try. Follow these 5 steps to better your chances to qualify for a home loan on the first try.
Assess Your Credit Score
Even though your credit score may seem like information that is difficult to track, there is a lot you can do about your credit score before having your mortgage lender officially pull your score to qualify for a home loan on the first try. Using apps like Credit Karma, you can see an estimate of your score, areas of success and areas of improvement. If your score is lower than you anticipated, you can see exactly what you need to work on before going to a mortgage lender. The higher the score your lender pulls, the better your chances to qualify for a mortgage on the first try. A high credit score can have big financial payoff. Rates for high and low credit scores can vary up to 1.5% which amounts to almost $300 a month! $3,600 a year is a lot and can be prevented if you take some time to work on your credit before talking to a mortgage lender. The higher the credit score, the higher the chances you’ll qualify for a mortgage on the first try.
Save, Save Save
Even if you are not planning on putting down the traditional 20%, you still need to account for at least 3.5% down as well as all closing costs. Closing costs can range from 2% to 5% of the home’s value, depending on your market. After you sign closing documents, you’ll also need at least a few month’s worth of housing expenses in a savings or money market account. The last thing you want is for an emergency to happen and you don’t have any reserves to turn to. The lower your credit score, the more cash your lender will likely want you to front when closing on your home. The higher the credit score, the more likely you’ll qualify for a mortgage on the first try.
Pay Down Your Debts
To qualify for a home loan, your lender will likely want to see your monthly loan payments for your proposed mortgage, car, student debt, and credit cards equal less than 43% of gross monthly pay. Since you’re trying to lower your monthly debt amount, assuming you make a steady income each month, it’s best to hold off on making large purchases until after you close on your home. Large purchases include new cars, appliances, and expensive electronics. If you reach an emergency and you have to make a large purchase, talk with your lender about the best course of action.
Hold Onto Your Job
Lenders like to see that you have held onto a steady job for at least a year. This shows them that you’ll likely be able to pay your mortgage based on the monthly income you receive from your job. If you’ve been recently promoted, you may need to wait until you’ve been in the role long enough, or budget for a home using your old salary. This means it’s not a great idea to job hop close if you’re looking for home ownership in the near future.
Talk with Your Mortgage Lender Early
It’s always best to talk with a mortgage lender when you are seriously ready to be a home owner. There’s nothing worse than finding what you think is your dream home, only to find out that the price is way out of your reach. A mortgage lender will help you navigate your way through the home search and will give you an accurate range of homes you should be looking at buying. Additionally, if a real estate agent sees that you have a pre-approval letter in hand, they will know you are serious about buying and will show you homes that they absolutely know you can afford. Talking with a mortgage lender early will give you the best chances to qualify for a mortgage on the first try.