If it’s your first time buying a home, then you might be asking yourself the many questions that come along during the home buying process. Most questions may be centered around financing– including how and when to apply for a mortgage. This recent article by Eileen Oshanassy of Realty Biz News, shares three things to consider before getting your first mortgage.
Know Your Credit Report
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.
Pay Down Your Debt
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.
Prequalify for a Mortgage
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.