Buying a house is a big step for everyone. People started to realize that they need to act as soon as possible in order to avoid the risk of paying more every month due to the increase in rates. The whole process of finding the right house and applying for a mortgage can be overwhelming for some people.
Applying for a mortgage is the only solution for most people to get to their first home. More than 6 million homes are sold in the US each year and the current American mortgage debt is $10.3 trillion. The people applying for a mortgage each year in the US can fill 80 Churchill Downs arenas, the race track for the annual Kentucky Derby.
Good preparation is essential for making sure the process goes as smoothly as possible, and to avoid any unnecessary costs. The mortgage application can be approved easily in some cases, but some people have trouble filing the mortgage application due to credit history and income. That is why in this article, we will go through some of the things you need to consider before you apply for a mortgage.
- Know what you need
Knowing what you need is essential in order to get the right loan. In most cases, lenders will want a standard package of materials. These include a month of recent pay stubs from buyers who will be listed on the loan application. Having the right documents will fast forward the process. You can also expect to hand over at least three months of bank account statements, and of course, you need documents to explain any unusual transactions (deposits or withdrawals). Knowing what you need is determined by the type of house you need as well as the monthly rate you can afford.
- Knowing you limit
You should know that there are rules to follow in order to make sure you have enough money to afford the monthly payments. Ignoring to follow these rules can lead to huge financial problems, and the back will take over your house due to missed payments. Most people call it the 28/36 rule. In other words, your mortgage must be lower than 28% of your gross income and your total debt payments. These include any loan that you have for example, mortgage, car loans or any other monthly payments. All of the loans must not go over 36% of your gross income. This rule is designed explicitly from previous experience just to make sure you are financially stable.
- Understanding the housing market you want to get in
Most of the time, the type of loans depends on the kind of home you are interested in. It is all connected from previous cases and lenders apply different rules to go by. For example, Florida is a state where many projects went bankrupt, which is why lenders have sticker standards. In some cases, they even expect to go cover 25% down payment in order to make sure everything goes without any problems. Choosing the right market will improve the rules for your loan, so make sure you do proper analysis before you apply for a mortgage.
- Pay off any debts before applying for a mortgage
As we mentioned before, lenders would want you to have more than 36% of your total gross income for revolving loans. This means that it is important that you pay off any debts before you apply for a mortgage. Improving your financial balance will make sure that you get approved without any problems. Also, it will make your life easier since you will have fewer debts to worry about. Some people run into mistakes acquiring too many loans which later becomes a problem for living a normal life.
Since applying for a mortgage is a serious thing, you need to make sure you are prepared for the journey. It is essential that you get everything right in order to avoid losing your home due to failed payments. Sometimes it is better if you find a financial advisor that will guide you through the process.