Obtaining a fair mortgage can be the biggest challenge while purchasing a home in today’s unstable economic environment; the real estate market has been nothing short of a roller coaster ride over the last decade with several notable ups and downs. While mortgage rates are still currently low, making it a buyer’s market, many lenders are more careful than ever when it comes to approval. Unfortunately, it seems that the past errors that left thousands ill equipped at ever succeeding in repaying their mortgages have created a cautious atmosphere in which buyers need to tread lightly. It is in this light that we offer 4 helpful tips to consider when preparing for and applying for a mortgage loan.
- NO Big Financial Moves
When dealing with down payments and approvals, banks will pay very close attention to any large sums of money moving in or out of your bank account in the time leading up to your application. Experts suggest that you make sure to cash in any savings bonds or stocks you plan on using at least 4 or 5 months ahead of time. The same rule applies if you are lucky enough to have a generous uncle, parent, or grandparent willing to help with your initial down payment; depositing this money early will also save your family member or friend unnecessary “gift letter” paperwork.
- Maintain Your Current Credit
The same rules mentioned above apply to your current credit profile, as you should absolutely avoid anything that may have a negative effect on your credit score during the months leading up to your mortgage shopping. A lower score could lead to a negative change in rates and increased fees, as well as even a loss of loan qualification. Experts state that maintaining a consistent “debt to income ratio” is vital, meaning you must avoid opening or closing any current cards, as well as any big purchases like a car or even a wedding.
- If Possible, Wait Until You Have 20% for a Down Payment
We know that this one is much easier said than done depending on your own individual family and financial situations, but there is very good reason to hit that 20% mark before applying. Often, loan insurance comes into play when a down payment is less that 20% of the overall home cost; this is understandably forced by lenders to protect them from instances of default. While Freddie Mac and Fannie Mae will be offering loans to people with as little as 3% for a down payment later this year, the insurance can be quite costly in the long run. Therefore, if you can afford to wait and avoid any FHA Insured Loans, a private mortgage premium with 20% down is the most efficient way to go.
- Secure a High Quality Pre-Approval
Getting a pre-approval will not only make you more desirable to lenders, it will also help you close faster when you actually go into contract. The reason for this is that a pre-approval will actually let your broker or bank review your full debt obligations, credit score, and income when determining the terms of your mortgage rather than using estimates on an application. The lender will have your full financial analysis completed earlier in the process, resulting in fewer headaches as you go deeper into the process.