Buying a home is a big decision — in fact, it’s the biggest financial decision most people will ever make. If you decide to buy a home, it’s likely you will need a mortgage to do so. Before you even start the mortgage application process, there are three important things you need to do.
Figure out how much house you can afford
When you apply for a mortgage, the bank will determine how much it thinks you can afford to repay, based on your income and other factors. But that may not actually be an amount you are comfortable with. Your lender will look at other debt payments you have in determining the amount, but not necessarily other financial commitments you may have. So it’s important that you figure out the monthly payment you would be comfortable paying, and don’t forget to figure in the estimated amount of property taxes and home insurance that will be included. You also need to decide how much you can afford for a down payment.
Check your credit score
While how much money you make and how much debt you have are important factors in getting a mortgage, the most important factor is your credit score. Having a good credit score will not only make it more likely you will be able to get a mortgage, it also will help you get more favorable terms, such as the lowest interest rate available. You can check both your score and report, and if you find any issues or inaccuracies, take immediate action to correct them. Any problem with your score can cause you issues when you apply for a mortgage.
Do your research
Not all mortgage lenders are the same, and there can be variations even in the rates they offer. Check out at least three potential mortgage lenders. You might start with your own bank. Find out if your bank provides any incentives for existing customers, such as a discount on rates or a reduction of closing costs. You might also check out a mortgage broker, which can submit your application to various lenders to get you the best deal possible. You might also get recommendations from friends, family members and work colleagues to find what lenders are recommended and which ones are not. Do thorough research of any you are considering, including looking for complaints online as well as any news stories about wrongdoing.
Once you have done these steps, you are ready to actually apply for a mortgage. Keep in mind that the mortgage application and home-buying process can take a long time. Be patient and make sure to follow through with all tasks you are asked to complete.