Looking for a house is a thrill. You get to tour homes, play designer, and envision a happily-ever-after. Yet in 2018, roughly 40% of Americans reported that buying a home was the most stressful event in modern times. Why is that?
Money. Most people can’t envision where they’ll be in a year, let alone the concept of paying for a mortgage for thirty years.
But today, with mortgage rates at an all-time low, the price is right to buy. So what are the five things you can do to ensure your mortgage application shines bright on a lender’s desk?
- Have a Healthy Debt-to-Income Ratio
The first major red-flag on a mortgage application is if you’ve accrued significant debt with no clear end-date for paying it off. A lender needs to ensure you’ll be capable of paying them back in a timely manner. Even if you’re likely to receive pay-increases over time, if you aren’t able to pay your debts immediately, they’ll likely pass.
If your ratio is out of wack, here’s a great guide on why is finance so important.
- Have Excellent Credit History
The lender looks at this to see if you have a history of paying back debts. A higher credit score will ensure you get a lower interest rate, so make sure to check your credit before going into the application process. Free copies of your credit report can be found at annualcreditreport.com.
- Optimize Your Down Payment
Lenders can offer numerous statistics on mortgage payments, depending on what percentage of the home’s cost you’re willing to put down. The standard options are 3%, 5%, 10%, and 20%.
To avoid an additional cost, mortgage insurance, you’ll want to try and put 20% down. Don’t blow your savings on a down payment, though. You should save some reserves for emergencies and a lender won’t make this decision for you.
- Have Extensive Work Experience
You need to have a proven track record of earning income. Lenders require proof of income, up to several months prior to asking for a loan.
Don’t switch careers if you’re looking to apply for a mortgage in the near future.
- Don’t Stop Once You’re Pre-Approved
Before you close on a house, a lender will check again to see if anything has changed in your credit history. This means, even if you’re pre-approved, don’t take out credit for another major purchase, don’t switch jobs, and keep paying off any debts you may have.
After the Mortgage Application: The Appraisal Price of a Property
If you go to make an offer on a home, you’ll need to hire an appraiser to come check out the property. The appraiser’s job is to make sure that the home is worth what the lender is paying for it.
Things they’ll ask: was the home a quick flip? Are there urgent repairs needed, such as a new roof or replacing windows? These questions will lead an appraiser to determine if what you offered for the home is worth the cost.
If it’s not, you’ll either need to renegotiate the price with the seller, pay the additional cost out of your savings, or ultimately pass on the home.
Food for Thought
Be honest with your lender in your mortgage application, and lead with your best foot forward. They want to help you get a home; they just want to ensure you’re not stuck with a mortgage you can’t pay.
If this helped and you’d like to learn more, check out our other finance articles below.
