Buying a home is one of the greatest milestones many people accomplish during their lifetimes, and the process of moving in, purchasing new furniture and personalizing the house can be exciting. The process of actually obtaining a mortgage, however, can be tedious, and it’s important that buyers put their best foot forward to avoid errors or mistakes that could jeopardize the sale. Preparation is the key to a successful mortgage deal, and buyers that focus on improving their finances and outlining a clear home buying budget are more likely to go through the process without any hitches.
One of the first and most crucial aspects lenders will examine is an applicant’s credit score and report. Carrying too much debt, failing to make payments on time and applying for too many credit accounts in a short period of time can make buyers appear risky. These habits also impact consumer credit scores, and lower ratings may result in obtaining a less favorable interest rate or being denied a mortgage altogether. To avoid these scenarios, buyers should pull a copy of their credit report from each of the three credit bureaus – Experian, Equifax and TransUnion – to see where they stand. If they are carrying high amounts of credit card debt, it’s important to pay off these balances before meeting with lenders. Those that have issues eliminating their debt may benefit from working with a credit counselor to get their finances in order.
It’s also important that consumers have saved up a sizable amount for a down payment. In the absence of a perfect credit score, a large down payment may help buyers qualify for a loan and reduce the principal balance on their new home.
Pre-approval can help the sale move quickly
Once consumers are confident in their finances, speaking with a lender about getting pre-approved for a loan is another smart move. Pre-approval is an estimation that buyers can afford to borrow a certain amount for their mortgage, and this can be helpful when shopping for homes. Most sellers will take buyers more seriously if they have been pre-approved for a loan because it lessens the chance that financing won’t come through. However, consumers should keep in mind that just because they qualify for a certain amount does not mean they should accept. Applicants are generally discouraged from taking out a mortgage if the payments exceed 28 percent of their take-home pay.