Before calling up a realtor and looking at potential new homes, it’s not a bad idea to go the bank first and get pre-approved for a mortgage. This step allows you to submit your offer immediately with and with confidence, so you don’t lose your dream home to another buyer who was already approved when you were not. However, there are some things to consider before walking into the bank that will increase the chances of getting approved.
Save Some Money
There are lots of loan options out there, and they differ drastically in the amount need as a down payment. Depending on your personal situation, you can choose a loan with a down payment as little as 5%, but if you can accommodate 20% down, you avoid paying Private Mortgage Insurance (PMI). Don’t forget to account for closing costs which can be an additional 3-5%. Educate yourself on what type of loan will work best for you and set up a savings plan to start putting money aside for a down payment and closing costs.
Clean Up Your Credit
Not all consumers check there credit scores, but it would be wise to do before applying for a mortgage. There are lots of websites where you can even check your score for free. A good rule of thumb is to keep all credit cards at 30% utilization or less. Make sure you send payments on time and have a good payment history. Know that lenders are looking for a minimum credit score of 680, so make the necessary adjustment to fix your credit before applying and increase the possibility of getting approved.
What Can You Afford?
Lenders are going to look at your current pay-stubs and other financial information to grasp an idea of what you can afford. Typically they want the sum of all your debts not to exceed 66% of your income. This includes your mortgage, auto loans and credit cards. Some other things you need to consider that the lender might overlook, are your individual finical needs for daycare, medical or educational expenses. Factor in all of your finical obligations and determine what is right for you. Just because you get approved for that $500,000 house doesn’t mean it would be wise to purchase if you have to cut your grocery bill in half.
Being prepared and knowing what to expect before setting an appointment with a loan officer at the bank helps, but even if you don’t get approved for that mortgage today, don’t let it discourage you. Now that you have a better understanding of what the bank is looking for, create a plan of attack on the areas that need work, and let that motivate you.