Holding the keys to your first house is a feeling that most people never forget.
Unlocking the front door and walking through it for the first time after closing can seem like a dream come true. You start thinking about all the memories that you will create in your new space. That’s right, your space.
But how do you get from just dreaming of your house to stepping through your front door? For most people, the next step is getting a mortgage. However, if this is your first home, the mortgage process can seem daunting. Even if you have been through it before, it can be overwhelming.
Continue reading below about five things lenders want you to know about the mortgage process. You might even realize that getting a mortgage and owning a house is not that far away for you.
1. Do: Get Pre-Qualified, Don’t: Shop Out of Your Price Range
Pre-qualification is an important first step in the home buying process. It is a rough estimate of what a bank would loan you based on a general picture of your income, your debt-to-income, and your assets. Lenders don’t check your credit score for this step, and you can generally get pre-qualified over the phone or online.
A pre-qualification isn’t a guarantee from the lenders, but it still is important for a few reasons. First- you get a better sense of what your next steps are to reach your financial goals, and second – when you start shopping for houses, you are looking in your price range.
2. Do: Improve Your Credit Score, Don’t: Assume Your Credit is Good Enough
You have been pre-qualified so you have an idea of what you can afford, but a better credit score will help you get a lower interest rate on your loan. It might not seem like a lot, but a 4% vs. a 4.5% interest rate will be a difference of thousands of dollars at the end end of your loan. (Check out what different percentage rates would do to your monthly payments and your overall loan with this savings calculator.)
Improving your credit score will take some time as there are no quick fixes, but a better interest rate is worth the wait.
You might be thinking, “OK, great. I’ll improve my credit score, but what should my target number be?” The specific minimum credit score can vary from lender to lender. However, since the recession, lenders are looking for a higher credit score than they did in the past. So, so even if your credit score is already above the average minimum, work to improve your score.
Remember, a better credit score can get you a better interest rate. Be patient, it takes a little while for your credit report to reflect your hard work, but in the meantime continue reading to find out more ways to help yourself secure your home loan.
3. Do: Lower Your Debt to Income, Don’t: Take On More Than You Should
Lenders will take a very close look at all your finances including your debt-to-income ratio (DTI). So what exactly is your DTI ratio and why is it essential to have a low number? DTI is how much money you have left over after you make all your monthly payments.
Lenders are looking at how much money you earn each month, and how much of that money goes toward the debt you already have. Ideally, you should have a DTI less than 43%. Find out what your DTI is so you can work to improve it to get the DTI number you need.
The higher your debt-to-income, the less you will be able to comfortably take on. Now is the perfect time to get serious about your debt. There are a lot of tips on how to pay off debt that you might not have thought of already.
While it is hard to make changes to your lifestyle during this process, it will feel so nice not to have the financial burden of all this debt. Additionally, getting your debt-to-income ratio lower is not something you will regret when you are drinking coffee on the first morning in your new kitchen.
4. Do: Get Pre-Approved, Don’t: Wait Until After You Find a House to Get Pre-Approved
Pre-approvals make the whole process feel real. Lenders are looking through all your documents, checking your credit, writing up your loan, and sending it off to underwriters to get approved. The whole process it nerve-wracking and exciting.
Pre-approvals aren’t a guarantee, but they are pretty close, and they do give you a good understanding of what your interest rate might be.
Some people wait to get pre-approved until after they have made an offer on a house, but it is a good idea to get pre-approved before you make the offer. In fact, some sellers won’t entertain offers without a valid pre-approval letter.
Now, it can be a rather lengthy process as it is your financial history under the microscope, but if you have all the necessary
documents organized and ready to go, it will make the process a little smoother.
5. Do: Ask Questions, Don’t: Work with Lenders You Aren’t Comfortable With
Lenders are knowledgeable and have experience with the mortgage process. They want to help you get a loan and get into the house of your dreams. This loan might be your first home loan or your fifth. Regardless, you will have a lot of questions.
It is vital to ask questions when you are unsure or unclear about something. Your lenders understand this is one of the biggest (if not the biggest) financial decisions of your life. They want to help you every step of the way and make sure you feel comfortable and informed during the process.
Buying a home is one of the most exciting purchases in your life. Twin City Lending is here for you every step of the way. Contact us todayfor your home loan needs.