You have saved up enough money for a down payment, and now you're ready to get your first mortgage. However, there are a few things you should know before you fill out your first application at the bank. If you are buying a house for the first time, or just aren’t sure what you want in a mortgage, make sure you know the following.
Naturally, your credit report will have a great impact on the interest rate you will be paying for your mortgage, but what exactly is in your credit report? The first thing you need to know about is the existence of any mistakes on your record. A lender who has inadvertently placed a negative mark on your report can remove it as well. Negative marks on your credit can cost you a lot of money over the course of a mortgage. Make sure your credit report is accurate.
Your income will have a big influence on how large of a mortgage you quality for, but there are other important factors as well. One of them is your income to debt ratio. A lender will look at how much debt you are already paying each month, and then factor in a mortgage payment. Although each lender has slightly different standards for what is acceptable, at a maximum, it is between 40 and 43 percent of your monthly income. If you currently have a lot of debt, especially credit cards, you should work towards paying them down before applying for a mortgage. Your chances of qualifying will increase after paying down the debts you already have.
It is usually best to prequalify for a mortgagor before you go house hunting. This serves two purposes. The first is that it makes the jobs of realtors easier because they already know your maximum price, so they can narrow down the houses you can choose from. This speeds up the process of buying a home. Secondly, you will know exactly how expensive of a home you can afford. If you don't qualify for a mortgage large enough to finance the home you want, then you can put off the purchase of a home until you can qualify for a bigger loan. You can focus on paying down some of your debt, increasing your income, or perhaps just saving up for a larger down payment.
In order to qualify for the best possible mortgage, you need to prepare in advance. Take the time to get a copy of your credit report from all three credit agencies, and make sure everything looks good. Decide if there is anything you can do to improve your credit rating. In addition, make sure your current debt is not too high, then prequalify for a mortgage loan, and go house shopping.
Eileen O'Shanassy is a freelance writer and blogger based out of Flagstaff, AZ. She writes on a variety of topics and loves to research and write. She enjoys baking, biking, and kayaking. Check out her Twitter @eileenoshanassy. For more questions on getting a mortgage, realtors at Pink Realty can help guide you.