Getting a mortgage is a complicated process but preparing beforehand will make the process less daunting and more relaxed. Vital steps in the preparation phase include; reviewing your credit reports for inaccuracies, establishing a solid employment history, budgeting your finances and putting away money towards a down payment.
One of the first steps towards homeownership is to obtain a copy of your credit report from each of the three major reporting agencies; Transunion, Equifax and Experian. Go through your reports thoroughly and check for any discrepancies and errors. If there are any inaccuracies you can dispute them and this must be done with each of the three agencies separately. Also, observe what your Fico score is. You want your score to be as high as possible. Derogatory accounts such as collections and charge-offs have a negative effect on your score. A good idea is to pay off a few of your current loans and debt as your debt-to income ratio is a factor which determines the type and how much of loan that you will be able to obtain.
You will want to stay with the same employer for at least two years, preferably longer. Most lenders prefer that you have at least two years of employment history with the same employer. Lenders also like to see at least two years of employment within the same field and career because it shows a stable work history. Lenders will ask to see your employment pay check stubs and bank statements. If you are self-employed you will need to provide documentation of your income with at least two years of W-2 documents and possibly proof of other assets and business financial statements.
Calculate how much you can afford to borrow. Keep in mind that you will also need to pay property taxes, utilities, homeowners insurance, maintenance costs and possibly private mortgage insurance (PMI), not to mention your other expenses. Write out a plan and figure out how much home you can afford. It’s a smart idea to downsize and purchase a home that you can easily afford instead of getting a more expensive home that you’ll be struggling to pay off.
In the months leading up to your mortgage application you won’t want to apply for any large loans. Doing so will increase your debt-to-income ratio and you will have less funds available to apply towards your down payment and the cost of escrow.
Preparing in advance and getting your finances and documents in order makes the home buying process much it easier. It will bring you one step closer to the home you have always desired.
Written by Jacqueline Star: Refinance, San Diego New Homes
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