Things to Consider Before You Apply For A Home Loan

The process of buying a home can be both demanding and stressful. There are many steps involved that can make it a bit daunting, especially for a first-time homebuyer without the right guidance and preparation. However, you can make the home buying process easier by considering several things before taking out a mortgage for your new home.

Here are things to consider before you apply for a home loan.

Know Your Budget

Before you buy a house and qualify for a mortgage, step number one is knowing how much you can afford. Mortgage lenders will primarily assess this by looking at your debt-to-income (DTI) ratio, which is the percentage of your monthly gross income that you spend each month to pay your debts.

The pre-qualification process will also help you determine how much you qualify to borrow and help you set a realistic budget when buying a house. If you’re not quite to the point where you are eligible for a mortgage loan big enough to pay for the place you want, there are small steps you can take to improve your DTI and meet your budget.

Because making more money isn’t always an option, you can begin improving your DTI by focusing your efforts on paying down debt, such as credit cards, car loans, or student loans. Additionally, any work bonuses you receive or sales you make on unwanted household items or gifts can go toward paying down those debts. As you do this, it’s also best to halt any other credit card spending.

Finally, one of the best ways to decrease the size of the home loan you need is to save up for a larger down payment. The more you can put down on the house, the less your mortgage payment will be. And if you are able, putting down 20% on a house means you won’t need private mortgage insurance, which can lower your monthly payment even further.

Having little debt and more savings is not only good for your personal finances, but better positions you to afford your mortgage, down payment, and closing costs.

Boost Your Credit Score

When applying for a mortgage, it’s advantageous to have a good credit score along with a low DTI and strong financial history. While you don’t need a perfect score to get great mortgage rates, you must meet specific credit score requirements when submitting your mortgage application.

When lenders check credit reports, they rely on credit scores to indicate that home buyers will meet their obligations. The higher your credit score, the more assured lenders will be that you will pay them back. And if you can boost your credit score from good to excellent, you can lock in even lower interest rates to enjoy greater savings in the long run.

Determine Where You Want to Live

Once you know what you can afford and have the money saved up to purchase a house, an often overlooked consideration is determining exactly where you want to live. To ensure you don’t settle on just any home, it’s best to scout potential homes with real estate agents’ help while paying particular attention to both the property and the neighborhood.

A useful tip when checking out properties is to create a homebuyer checklist that contains all the things you want out of your new home. This can help you weed out properties that don’t have the amenities and features you’re looking for and spare you from scheduling visits at homes that don’t check all your boxes.

Secondly, you’ll want to be sure to research the surrounding neighborhood. In addition to guidance from your realtor, you can quickly look up important information such as crime stats, transportation, and other factors that matter most to you.

Shop Around

Before you settle on a home loan and lender, you should shop around to learn about the different loan options available to you. For instance, you should look into the difference between fixed-rate and adjustable-rate mortgages (static monthly payments versus fluctuating) and, if you’re a first-time homebuyer, whether you qualify for any special programs.

Once you’re sure you want to move forward with a home loan, you need to do your due diligence to find the right lender. A great starting point might be to work with an existing lender that is more likely to give you a good deal for being a current customer. Otherwise, you should choose a reputable lender that is well-versed in mortgages, is knowledgeable about loan options, and can offer you fair interest rates and fees.

Get Your Materials in Order

Once you’ve found the right lender, there’s still quite a bit of work to do. Most lenders will lay out precisely what is needed to accept your application, but having a sense of which documents are necessary before you apply for a home loan can help you be more prepared and make the process go more smoothly.

While getting preapproved for a mortgage isn’t a requirement before you begin shopping for a home, it’s a good idea, especially when there’s a lot of competition among buyers. You can get started on your mortgage preapproval checklist at any time to ensure you’re prepared with all the right documents.

Refinance Your Mortgage

The Final Word

Buying a home is a big decision, and you should consider all relevant factors before applying for a home loan. Knowing your budget, credit score, and what you can actually afford is critical before you begin looking at houses and shopping around for the right lender and home loan. And finally, it takes a bit of prep work to round up all the documents you need for the mortgage preapproval and approval process.

Once you’ve considered all of these items, T&I Credit Union can walk you through the home loan process and find the best rates and terms available to you. Call us at (248) 397-9345 to apply for a home loan today.

About Tammy Newcomb

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