Some Cardinal Truths About Getting That First Mortgage!
Taking that first mortgage is a crucial step in every home owner’s life. It is your first home and you want to do everything right. Understanding the mortgage industry and how you can use it to buy that home will benefit you and your credit score in the long run.
If you have a perfect credit score, have always paid your credit card bills on time and in full, a healthy bank balance with a steady income, you are a prime candidate for a mortgage. Your request will probably be approved in no time. However, if your credit score is not great and you have had issues with your credit card payments, it is best to start building a good credit score long before you attempt to take out a mortgage. To understand it better, you need to first know your credit score. The credit score is available free online and you can download it. This will help you to understand the problems. While it will provide you with the number, this number will not be the same as what your mortgage officer sees. The number your mortgage officer sees is usually lower than what you see. So, therefore it is important to meet with mortgage officers once or twice before you start the process of looking at homes. In certain cases, home agents will be hesitant to show homes to you unless they know you have been preapproved for a mortgage.
So, what will you need to know and do:
- You should be ready to bring in your tax papers of past years with you.
- Bank statements are something that mortgage officers will need to inspect and hence they may ask for many years of bank records.
- A critical factor in the decision-making process is to see if you have the bank balance to support the purchase. Cash is essential. You will need it for the down payments, you will also need the balance to assure the officers that you can take care of the monthly EMI's and general upkeep of the house.
- Down payments are generally 20% but experts have different opinions on the same. While a down payment lower than 20% up to say 3.5% is accepted, the monthly payments increase. So, this increases the monthly burden quite a bit. Another important consideration is the fact that if your down payment is lesser than 20% then you are liable to take an insurance- mortgage insurance premium. On the other hand, if you are ready to put down more money as the down payment, you may get the mortgage at a lower rate of interest as well.
Some of the things you must do before you apply for your mortgage:
- Meeting a mortgage officer: most people don’t see a mortgage officer before going house-hunting. If anything, you should set up realistic expectations before you see a home. It is the worst thing when you see a home and realize that it is beyond your financial capacity. Being pre-approved for a loan makes you attractive to lenders as well as sellers. Not only this, nothing stops you from shopping around for other loans after you have been pre-approved. You can still look around and try to get the best loan for you. There is paperwork to consider as well, so the earlier you start the better it is. Also your Loans and mortgage papers needs to be approved by a mortgage officer.
- Handle any debt that already exists: Mortgage officials look at how much debt you have and what is your capacity to repay. If you have student loans, car payments or credit card dues, these should be taken care of as quickly as possible. When they analyze your ability to pay loans, they will consider your overall debt. If your combined debt including the proposed house payments constitutes more than 43%of your income, your chances of getting a loan are minimal.
- Developing good credit habits: It is never too late to develop better credit habits. Ensure your bills are paid on time, no matter what the amount on your bill. It should not only be taken care of on time but it should be paid completely. Issues in relation to delayed payments or those that go into a collection can really mess up your credit score (resulting in higher interest rates when you are looking for a mortgage) and it can take very long to fix it. In addition, if you have any loans that are outstanding, you can always consider refinancing say, for instance, a student loan. A clever idea may be to consider lowering the payments monthly and stretching his over a longer period time.
- Your work history is critical: It is highly important to show that you have been working and your work history will speak for itself. For instance, you have a master’s degree or an engineering degree, and you approach the lenders for a mortgage after having just taken a job, you are most likely to get it. However, you will need to stay in a small-time employment for a few years before you can hope to get a mortgage. What you need to prove is your commitment to hold a job and earn a regular income.
- Paperwork: Before you apply to get a mortgage make sure you are prepared for paperwork. There will tons of it and will happen repeatedly. All your bank statements, investments, tax papers etc. will be checked before approval. Other important documents will include your employment papers.
- Amongst other things, you need to pay attention to a few things:
- Do not use your credit card or apply for credit while your loan is pending. Be careful and spend only as much as you have as it can affect the approval process.
- You will be smart to look around for different options as far as mortgages are concerned. Though they all provide the same thing primarily, they differ in how they choose to present it to you. If someone is offering a no closing costs loan, do analyze the terms to understand if it really is a good deal.
- Make sure you have enough cash.
While this is exhaustive information on mortgages and how to approach it so you are successful in the first attempt, individual circumstances are different. However, if you have a perfect understanding of the process, you will be able to approach the whole thing a lot more confidently.