If you have decided you want to buy a home you know that tone of the next things you need to do is apply for a mortgage. It is important to be pre-approved so you can buy the home you want when you find it but also so that you know how much home you can afford. But, before you head to your local mortgage lender, there are a few things you should do before you apply for a mortgage.
1. Check Your Credit Score & Report
Before you apply for a loan, it is important to get a copy of your credit report and check your credit score. First, does your credit score look right? If it seems too low, check to see if there are any errors in it that need to be corrected. If correction is needed or your credit score is just lower than anticipated, now is the time to start making an effort to increase it before you apply for a loan because your score will be one of the biggest influencers of what amount you are pre-approved for.
2. Crunch the Numbers
Take a close look at all of your monthly expenses including food, entertainment, insurance, memberships, gas, utilities, clothing, etc. Total everything and then look at your income (or your combined income). Make sure you are comfortable with your potential monthly payment and that you also still leave a little room in the budget for unforeseen expenses – nobody wants to be house poor!
3. Pay Off Debt
If your credit score is very low because of how much debt you have, or if your loan-to-income ratio is not favorable, you may need to pay off some debt before you apply for your loan.
4. Maintain Status Quo
Other than potentially paying off some debt, it is important to maintain your financial status quo as much as possible before applying for a loan. The Motley Fool explains why this is so important, “Even after you receive approval for a loan from a mortgage company, it will monitor your finances through the closing. This means that until the lender actually writes the check, everything you do matters. One of the easiest ways to sabotage your loan is to take on more debt before your mortgage becomes final. Even if you plan to finance furniture for your new house, you should not do so until you actually own the home — and you should most certainly not buy a new car while waiting for a loan to close. Lenders will also look for cash purchases, because they want to see that your bank account reflect the numbers you showed them when applying. In many cases that means they will ask to see new statements as they become available, and they will notice, and may take issue with, any big expenses.”
5. Save, Save, Save!
The more you have for your down payment, and to put towards your new home, the better. And, having more in savings is likely to help you get a mortgage loan and for a higher amount.