You’ve decided to buy a new home, and you’re excited to start looking through the listings. But before you do, make sure you’re financially prepared. The checklist below can increase your odds of qualifying for a mortgage on the best terms available. Hint: Starting three to six months before you begin house hunting will give you time to make any needed “fixes” to your finances.
1: Check your credit report and credit score.
The better they are, the more mortgage options you’ll have and the better chance you’ll qualify for the best interest rates. Be sure to review your credit report carefully to ensure it accurately reflects your payment history and current credit obligations. You can get free copies of your credit reports once a year at AnnualCreditReport.com.
Check with your bank and credit card providers to see if they offer free credit score reporting. Think twice before paying to see your score — if your credit history is good, your credit score is likely solid as well.
Hint: To improve your credit score, focus on reducing debt, paying your bills on time and getting any late payments up to date. Making your mortgage payments on time is especially important. Avoid closing or opening any credit or loan accounts within a few months of applying for a mortgage.
2: Assess your cash reserves.
Knowing what you have available for a down payment and closing costs can help determine your homebuying budget. Lenders will also want to see enough reserves, after you close on your new mortgage, to cover a few months of mortgage payments. Cash reserves may include savings, retirement and investment accounts, financial gifts, down payment assistance funds
3: Determine your ability to repay.
Review your budget to determine what monthly mortgage payment — including principal, interest, homeowners insurance and property taxes — you’re comfortable with. Also, be sure to leave room in your budget for ongoing home upkeep and emergencies.
4: Gather your application paperwork.
Having the right documents handy can help streamline the pre-approval and application process. While every lender has its own checklist, most will require:
- W-2s, past two years
- Proof of income (such as pay stubs or pension statements), past 30 days
- Financial account statements (including checking, savings, investments, retirement accounts), past two months
5: Get pre-approved.
A pre-approval is a written commitment from a lender saying they’ll fund a mortgage for a specific amount. It shows sellers you’re a serious buyer who is financially ready to make a home purchase.
Pre-approvals require you to provide documentation of your finances and complete a loan application. It’s much stronger than a pre-qualification, which is a more informal, loan officer administered process.
As part of getting pre-approved, your lender should also help you understand the different mortgage options available to you and which best meet your needs.
Hint: If your pre-approval doesn’t turn out the way you hoped, ask the lender for advice on steps you can take to improve your financial profile before trying again.
6: Prepare to negotiate.
You won’t negotiate until you make an offer, but it’s smart to have a plan. For instance, know your budget limit so you’re prepared to negotiate a price up to that point, but not beyond. Consider how flexible you can be with the closing date and contingencies. For instance, would you allow the seller to stay and rent back the home for a period of time after the sale? Might you need to delay closing until your current home sells? Also, have an idea of what types of repairs you’re willing to make yourself in exchange for a lower price point.
Remember to start on your preparations early. When you’re ready to start house hunting, you’ll feel confident about qualifying for a mortgage that lets you buy the home of your dreams!
For homebuying tools, to learn about Lakeview Home Rewards and to find a real estate agent, visit our Real Estate Center. To learn more about Lakeview mortgages, click here. If you’re ready to get pre-approved, call 1-855-294-8564. If you’d like to start a mortgage application, go online or call 1-844-518-2360.