Prior To Mortgage Application: Steps Prior To Applying
Once you have decided that you are going to be purchasing a home in the very near future, there are certain things you should do and get yourself ready prior to applying for a mortgage loan so things can go smoothly. One of the most important things to consider is to see how much house you can afford.
How Much Home Can You Afford?
You should contact a mortgage lender, or several, to see what you qualify for. Just because a mortgage lender gives you the maximum amount you qualify for does not mean that is your budget. Your mortgage loan originator will give you a maximum housing budget and it is up to you whether you feel comfortable. Remember that your housing expense is not just your mortgage payment, but also you need to consider reserves in the event if your furnace, air conditioning unit, or appliances break down.
Things To Do Prior To Mortgage Application
There are certain things you should do prior to starting your fill out your mortgage application. First, you should do everything in your power to maximize your credit scores and have a strong credit profile. For example, if you have had prior bad credit and only have one credit card, see if you can get two more secured credit cards to get more credit tradelines and maximize your credit scores. Do not max out your credit limit. Always have your credit balance below the 25% of your credit limit. If you have high balances on your credit cards, pay them down so your balance is less than 25% of your credit limit. By doing so, your credit scores will increase. Get a copy of your credit report. You can get one free credit report from each of the three major credit bureaus each year: Experian, Transunion, and Equifax by requesting it from www.annualcreditreport.com . Once you get your credit report, check to see for any errors.
Things To Avoid Prior To Mortgage Application
There are several things you need to avoid prior to applying for your mortgage application. One of the most negative things to avoid doing is having creditors pull your credit. Each hard pull credit inquiry can drop your credit scores by 5 or more points. Another thing to avoid is getting new credit, especially automobile loan. The average automobile loan’s monthly payment is $400 per month. By having an additional $400 per month monthly payment will decrease your home buying power by $100,000. A $100,000 mortgage is equivalent to a $400 monthly payment. Many folks who recently bought an automobile get forced in buying a smaller home because of the the auto loan.
Never Close Out Active Credit Tradelines
Another thing you need to avoid doing prior to your mortgage application is to close out active credit account. Closing out a seasoned credit card account will definitely hurt your credit scores. Credit bureaus look at the length of your credit history and the available credit limit on your existing credit account in calculating your credit scores. By cancelling or closing out an active credit account with a zero balance that you have had for years, you are cheating yourself from an optimum credit history account plus your credit scores will drop.
No Overdrafts In Bank Statements
Always have overdraft protection on all of your checking accounts. Many mortgage lenders will deny a mortgage application where the borrower had overdrafts on their checking account. Some mortgage lenders do not even accept a $5 dollar overdraft in the past 12 months. Do not play musical bank accounts and open up new bank accounts and close out existing bank accounts. Make sure all deposits over $200 are sourced and all withdrawals are documented. Have a separate savings account where you will have the down payment of your new home purchase. Document everything you can think of because mortgage lenders will ask you for any irregular deposits or withdrawals within the past 60 days of your mortgage application.
Matress Money, Cash, And Undocumented Funds
If you have matress money, cash, or undocumented funds, deposit it to your bank account 60 days prior to your mortgage application. Mortgage lenders only require two months bank statements and as long as you have cash or undocumented funds deposited in your bank account at least 60 days prior to your mortgage application, you should be set to go. Any deposits that are within the 60 day window need to be sourced and documented.