Steps to Acquiring a Home Mortgage
Consult an Expert
Ask your realtor, a financial adviser, an accountant, or your attorney to help you with a short list of lender referrals. These people deal with mortgage lenders regularly and can help you filter that continuum with the greatly disparate expertise and wherewithal and add real confidence to your decision.
Get your credit in shape: Order your credit reports
One of the first steps any prospective buyer should take is to take advantage of the free credit reports everyone is entitled to request annually, thanks to federal law. While there are many sites on the Web offering “free” credit reports, many of those offers require that you sign up for a free trial of a credit-monitoring service that will cost money if you fail to cancel during the free trial period. The official site where you can get free, no-strings-attached credit reports annually from the Equifax, Experian and TransUnion credit bureaus is www.annualcreditreport.com. You can receive one free credit report from each of these three agencies every year.
How’s your credit
While paying down your credit card balances will improve your financial picture, this is not the time to close credit accounts because reducing the amount of credit available to you can actually lower your credit score.
Don’t assume you should just get rid of it. If you already own a home and have an existing home equity line of credit, or HELOC, we recommend that you not get rid of it in preparation for a new home purchase. Sometimes buyers are going to need it; they can use it as an easy bridge loan (to cover the down payment temporarily until you sell the old home) so they don’t have to go through the trouble of getting one.
Organize your financial paperwork
You also should gather up all the financial documents that a lender will need when you submit an application. They include copies of your income tax returns, W-2 wage statements, paycheck stubs, bank and investment account statements, divorce decrees and child support documents and recent credit card statements. Having those documents handy will also help you put together a realistic budget and help you figure out what you really can afford to pay as a down payment and toward subsequent monthly payments for mortgage principal and interest, plus property taxes and insurance.
Documents to gather:
- Tax returns for the past two years.
- W-2 income statements.
- Two most recent pay stubs.
- Most recent credit-card statements.
- Most recent bank and investment account statements.
- Divorce decrees and child support documents.
- Your budget.
Craft a budget: How much house can you afford?
There is a difference between the maximum payment a borrower can qualify for — which can sometimes be surprisingly high — and the amount you can comfortably afford.
Each person has to know the difference in his own mind. If you’re just getting by with your current rent payment, and the lender says you can qualify for more, give it some thought.
However, first-time buyers, in particular, often don’t know how the tax-deductibility of mortgage interest and property taxes can help offset a mortgage payment that is higher than their rent. A good real estate agent can help you figure out the bottom line.
Keep it steady
Once you’re closing in on your purchase, and especially after you’ve applied for a mortgage, do your best not to change your financial picture. When you sit at the closing table, you will be asked to sign a document that says your credit is the same as it was when you originally applied for the loan.
If at all possible, put off job changes. Lenders like to see a steady history of employment and frown on job changes while your application is pending, unless the new job is in the same field and at the same or greater pay.