It's no surprise that getting a home loan takes some time and effort and if you haven’t gone through it before, it may feel overwhelming. After all, this could be one of the largest purchases in your lifetime. The good news is that there are a few things you can do to feel more confident in starting the home buying process.
1.) Check your credit report
Even if you haven't missed a payment, it's important to review your credit report for accuracy. Mistakes can happen and things may show up on your report that must be fixed. Credit is part of the mortgage loan criteria, so your report may affect the interest rate and loan terms a lender will offer you.
2.) Set your baseline
Before you find out how much a lender will lend you, decide what is a smart amount to borrow based on your finances and goals. If you follow the 50/30/20 budgeting framework, you'll divide your take-home pay between Needs (50%), Wants (30%), and Savings (20%). Your mortgage payment will fit within the 50%, but this also includes all other necessities: groceries, transportation, utilities, insurance, etc. Use our affordability calculator to determine your baseline and see if that fits within the 50/30/20 guidelines. This boundary will help you avoid purchasing more home than you can afford.
3.) Prepare your documents
Let’s face it, there’s a lot of information a lender will need in order to review your loan application. It can be frustrating to continue hunting for documents and slowing down the review process. Try to pull together as much information as possible early on to keep things moving forward.
4.) Take it one step further...
Consider other situations in your life that may cause your lender to ask for additional documentation. For example, if you have been divorced, your lender may ask for a divorce decree. Here are a few situations that may require additional documentation:
- If you're self-employed
- If you or a co-borrower is active-duty military or a veteran
- If you earn a significant portion of your income from investments
5.) Get pre-approved
Getting a pre-approval letter jump starts the mortgage process because a lender can review your credit history and determine how much you qualify to borrow. Additionally, your lender can identify potential problem areas that disrupt the process, like a mistake on your credit report. It can seem counterintuitive to secure pre-approval before you have found a house, but it streamlines the process since you know what you can afford and you already have a lender working on your side.
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