You’ve been watching Home Makeover-style reality TV for ages. You’ve been dreaming about homeownership for even longer. And now, after landing that dream position, settling into a solid career, and building up that steady paycheck, you’ve made a decision.
You’ve decided that it’s time to buy a house.
But there’s just one problem:
The more you research and read up on home financing, the more you’re realizing that you don’t know how to take out a mortgage.
If any of this is giving you strong feelings of “Yep that sounds like me!”, you’ve come to the right place. We’re going to tell you what you need to do to secure the financing you need. Sound good? Keep reading.
1. Do Your Pre-Application Prep
It’s not unusual to see people giving themselves financial makeovers once the words “I’m going to buy a house.” are more than just a fleeting thought. Why? Because not only does your financial situation impact your ability to get a mortgage — your credit score can have a direct effect on your offered mortgage rates.
To that end, some actions you can take include:
- Paying down any outstanding credit card debt
- Setting aside savings for house-related emergencies
- Canceling unnecessary subscriptions and monthly costs
And alongside that to-do list, you may also want to make sure that you’re not one of the 34 percent of Americans who have errors in their credit reports.
How is your credit score? Can you prove your income? What does your earning potential look like down the road?
These are the types of questions you’ll want to ask yourself before you darken a mortgage lender’s door.
2. Save Your Down Payment Money
Depending on who you ask, down payments are like money. The more you can put together, the better off you’ll be. But while some would advocate that homeowners put together the biggest down payment possible, there are plenty more who would argue that breaking up $30,000 into a $20,000 down payment and a $10,000 emergency fund is the way to go.
No matter which school of financial thought you come from, however, there’s one thing that everyone can agree on:
The more money you can put down, the better. And if you’re at the stage where you’re developing a financial strategy to acquire your down payment, you’ll want to get acquainted with a mortgage calculator before you start looking through listings.
The cost of your home mortgage adds up to more than just the cost of your house. Depending on what state you’re in, you may have to budget for mortgage insurance, property taxes, renovations, and home insurance on top of your monthly mortgage payments. And that’s before you begin factoring in the home refinance process.
For these reasons and more, you’ll want to make sure that your mortgage and house-related expenses are affordable and sustainable over the long run. And a mortgage calculator can only help you in this regard.
3. Explore Your Mortgage Options
When people say the words “I’m applying for a mortgage.”, they often picture themselves talking to the bank or speaking with a conventional lender.
However, there are a number of other types of mortgage loans that you may be eligible for such as Veterans Affairs loans or loans that are secured through the Federal Housing Administration. Heck, depending on your profession, you may even be able to scoop up a bargain-priced property through the Good Neighbor Next Door program.
But even if you’re not looking to do anything too fancy with your mortgage application, you still have more control over the process than you might think. For starters, you can shop around and secure quotes from multiple lenders before you make a formal application. Or, if you’re really looking to a comparison shop, you may wish to consider securing the services of an experienced mortgage broker.
With houses going for a solid six figures in most American cities, you definitely won’t want to skip over this part of the process.
4. Make Your Official Application
You’ve spent the past few months polishing up your credit. You’ve been cutting down on your nights out and you’ve been socking away every dime you save as a result. Now it’s time to finally bring everything together and make a formal mortgage application.
What happens now?
Assuming that you’ve done everything right, you should have your tax assessments, a letter of employment, and your down payment money sitting in your savings account.
All you can do is wait and see what happens.
In light of all the effort you’ve just put in, you might be wondering why the process is taking so long on principle. And the answer ultimately boils down to the fact that your lenders have no way to wave a magic wand that will instantly tell them if you’ll be able to pay them back.
Much like a job where someone can interview like dynamite while producing sloppy work in practice, anyone can put on some nice clothes and tell a convincing story to the bank. So lenders will often do their own due diligence through the underwriting process.
But that being said, if you’ve done everything you can to put forward the best job application possible, all you have to do is sit back and wait for your approval.
This Is How to Take Out a Mortgage
When you’re figuring out how to take out a mortgage, it’s easy to get caught up in peripheral details. You need money. You need your income-to-debt ratio to look just so. You need a full-time gig that allows bankers and mortgage lenders to let out a sigh of relief while thinking “At least this person makes good money.”.
But when push comes to shove, getting the home of your dreams doesn’t have to be an insanely nerve-wracking process. If you start by planning your finances early, you can get your home mortgage approved with minimal stress.
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