Buying your first home can be an exciting time. You may be looking at new homes and developments or seeking to buy an older home. When buying a home there are a number of steps that are taken. The first is often looking for that prefect home, the next step is applying for a mortgage loan. When applying for a loan you will want to make sure you are properly prepared. This will make the application process easier and far less stressful. The Tina Peterson Team will share a few tips on how to apply for a mortgage loan below.
Check Your Credit Score & Report
Before you begin applying for a loan or even before you begin checking out homes, your credit report is important. You first want to review your credit report to make sure there are no errors. Often errors are discovered during the loan process which can create long delays. Some of the errors to look for are the correct spelling of your full name, phone number, address(es) and account information. It also helps to have some money in your bank account after your down payment. It is good to show you have a month or two of cash in reserve. It is important to note that no-one’s credit score is perfect and there are loans given with low credit scores, however many mortgage loans require a credit score of 620 or higher. Don’t let a low credit score to deter you from applying for a loan. Many lenders will look at the bigger picture. They will access your account history over the pass 12 months and see if you been on top of payments.
Debt to Income Ratio
Make sure to a buy a home that is with your debt to income ratio (DIT). When applying for a loan the bank will look at your monthly income and allow monthly payments a maximum of 41% of your monthly income. However, ideally you will want a monthly payment no higher then 36% of your monthly income to avoid stretching you too thin. Do not settle on one quote from a single lender, rather seek out a couple different lenders and pick the right loan for you.
20% Down Payment if Possible
You can apply for a mortgage loan without putting putting downing a large payment up front. However, if you are able to put down 20% of the total cost of the home, it can grant you a better loan. PMI (Private Mortgage Insurance) mortgages are mortgages that receive less than the 20% down payment, which requires a mortgage insurance policy. PMI mortgages adds additional costs between 0.35% to 1.0% annually.
Compile Needed Home Loan Documents
You will want to make sure you have all the proper documents ready to make the loan process easier and to provide the lender with all the information they need. Following is a check list of documents you will want to have when applying for a loan.
• W2’s from your current and previous employers
• Paycheck stubs (at least 3 months or more)
• Bank Statements of the Previous 2 years tax returns
• Gift letter (only if gift funds where used)
• List of your debts
• List of all your assets
• Proof of timely rental payments (if applicable)
• Credit Report Profit and loss statements
• Signed sales agreement
• Proof of additional income Divorcee decree (if applicable)
• Bankruptcy paperwork (if applicable)
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The Tina Peterson Team hopes we were able to help give you a better start when applying for your first mortgage. Call us to help you find and purchase your next home today!
