What to do Before Getting Pre-Qualified for a Mortgage
Buying a home can be a long, drawn-out and stressful process. This rings especially true if you are a first time home buyer having to figure everything out for yourself. Even if you aren’t a first-timer, it is always helpful to refresh your memory and give yourself the upper hand.
Have Documentation Ready: Lenders will most likely ask for recent pay stubs, two years of most recent tax filings, and approximately three months of bank account statements.
How Much Can You Spend: Lenders a lot of the time use the 28/36 rule. Meaning your monthly mortgage payment shouldn’t be more than 28% of your gross income. Your total revolving debt (car loans, mortgage, etc.) shouldn’t exceed 36% of your gross income. However, this rule is not set in stone. Depending on your lender, their interpretation could be more strict or more lenient.
Check Your Credit Score: The higher your credit score, the more likely you are to qualify for a loan. To understand how credit scores are calculated and the difference between a bad, average, good, and excellent credit score, visit our blog post “How Are Credit Scores Calculated” by clicking here. While there aren’t very effective immediate ways to raise your score, you can make sure to not make your current score any worse. Make sure to eliminate outstanding debt, do not open new accounts, start new loans, or require a credit check.
Pay Off Debt: To achieve that 36% of your gross income in debts make sure to pay off car loans, credit card debt, or any other outstanding loans to the best of your ability. This will make your finances seem healthier to the bank or lender.
Organize Your Taxes: Lenders will most likely want documentation of the last two years of federal taxes and will want you to sign a release so they can verify your information with the IRS.
The more reasons you give your lender to trust you and believe that you will make your payments, the more likely you are to successfully qualify for a mortgage loan. There are many steps that go into purchasing a home, but you can’t move forward in this process without prequalifying for your loan. Make sure to take every step seriously in order to give yourself a smooth transition financially into your new home.