6 Things to Know Before Applying For a Home Loan

By
Mortgage and Lending with Horizon Lending Services, LLC NMLS # 198754

Are you thinking about applying for a home loan? The entire process can be very exciting, but it's also a very big decision. A mortgage is not something you should just jump into without proper long-term consideration and planning. Here's a look at seven things you need to think about before taking on a mortgage.

 

1. Timely Payments

This tip is really two-fold. First and foremost, you need to have the means to make your mortgage payments on time going forward. And, before you even consider applying for a mortgage, you need to already be consistently paying your current debt obligations on time each month. If you’re currently in the habit of paying late or waiting until the last minute to pay bills, you need to have a look at your current financial picture. If you're already struggling to make end's meet, a mortgage isn’t the right option for you.

On the other hand, if you’re putting off paying the bills for some other reason, you need to get in the habit of paying on time to make sure your credit looks pristine for a lender. Setup auto-pay and make sure you have at least 6 months worth of on-time payment history before heading in to apply for a mortgage.

 

2. Be cognizant about job changes

Is it likely that you'll be moving to a new job in the future? Have you been in your position for a short-time and you may be getting a promotion? The latter will be great news for your financial picture, but the former can lead to issues. If you’re planning on switching careers in the near future, this can lead to a lapse or decrease in your monthly income, making it difficult for you to keep up with your mortgage payments. You should have the promise of stable employment before committing to a mortgage.

If you end up defaulting on your mortgage, you’ll likely have to declare a foreclosure or bankruptcy. Either will put you into a detrimental financial situation that can take 7-10 years to recover from before you'll be able to get another mortgage. Wait until the timing is right.

 

3. Do Your Research

This is a point that can’t be stressed enough. Research the housing market in your area. Are prices on the rise? Is it a good time to buy? Also, research the type of home you may be looking at. Will you be starting a family eventually? Will you outgrow your home in a matter of years? Keep all of these things in mind and research accordingly. Don't jump into a mortgage before you're ready, and don't settle for a home that won't fit your needs within the next 5 years.

Also, research your loan options and the lenders in your area. Consider a home buying program like one through the FHA or even the USDA. The Veterans Administration also offers loans for service members and their families that you should consider.

 

4. Calculate

You should be tired of seeing numbers by the time your mortgage process is finished with, or really before it even begins. Before you ever step foot into a mortgage office, you should know the numbers inside and out. How much are you making right now? What are your current monthly expenses? How much of a mortgage payment can you afford? What's your credit score? What interest rate are you aiming for? What will a higher interest rate do to your price range?

All of these things should be carefully calculated, written down for reference, and looked at often.

 

5. Get Choosy 

Lenders everywhere want your business. That means you should be shopping around for the best rate and terms. Find a lender who fits your needs and one who's willing to work with you to get you into a comfortable mortgage payment in a price range that has everything you need.

 

6. Put a Pause on Your Credit

About 6-12 months before you plan on getting a mortgage, you should be taking a detailed look at your credit report. You should hold off on closing any accounts you currently have (unless you're paying off a loan, which would be excellent!) to stop your credit utilization and average age of accounts from changing your credit score. At the same time, be working to pay down open balances in order to lower your credit utilization.

You shouldn’t apply for any new lines of credit for 6 months before you plan on getting a mortgage. If a lender sees that you have a brand new credit account in the past 6-12 months, it’ll raise a huge red flag. You should be able to sustain your current lifestyle with the accounts you already have. Stop closing or opening accounts for the next 6 months to a year before applying for a mortgage.

 

Ready to apply for a home loan? Get pre-approved through our easy-to-use online system.

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Topic:
Home Buying
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Texas Collin County
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home loan

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Rainmaker
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Kristin Johnston - REALTOR®
RE/MAX Realty Center - Waukesha, WI
Giving Back With Each Home Sold!

Thanks for sharing this information....Have a wonderful Monday!

Apr 02, 2018 07:18 AM #1
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Rainmaker
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Pat & Sharon Mistowski

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