Maybe apartment life has you yearning for a backyard and breathing room or you are a recent newlywed eager to fill a new home with the pitter pat of little feet or a single woman eager to expand her shoe closet. Whatever your reasons for considering an application for a mortgage, be prepared to dig deep into your financials and have delicate matters squared away before you even approach a lending institution.
Budgets will no longer be for the faint of heart. Decide how much you can reasonable spend on a mortgage. This means you cannot cut so much out of your life that is virtually unlivable in hopes of saving enough to buy or to maintain a mortgage. Cutting out vacations is one thing, but trying to live off soup to afford your dream home is unrealistic and setting yourself up for failure. Researched your desired location and factor in how much you will actually spend living there as the real you as opposed to a saintly homeowner that will not turn on the air conditioning.
The rule of thumb is that you should have twenty percent of the home’s value ready as a down payment. It is better to start off with equity rather than with debt to begin your new life as a homeowner. There will be additional costs as well such as insurance, utility bills (especially in the summer months when the entire house must be cooled), and property taxes. Some homes will also have to add costs of homeowner association fees. Make sure that everything is realistically affordable for you. If you are not a saver, then homeownership may not be for you for a few more years.
Find a Reliable Source of Income
Sounds like common sense, but you must have a reliable source of income. This means that if you are in your first three years of a new business then you may want to wait another year or two. If you are freelancing and resisting an office job, then try to at least find part-time work. Lenders check to see that you have a liable source of income and this can make your monthly mortgage payments more desirable. When squaring your financials away, this should be your top priority.
Your personal credit score will play an enormous factor in acquiring a loan. Lenders will not be pleased to see enormous piles of debt or multiple unpaid credit cards. Pay off as many credit cards as possible. Lenders want proof that you are financially responsible. They will also take into consideration student loans and business loans as well. Do not take on any new debt ideally a year before applying for a mortgage. This is inevitably become a concern for both you and the bank. Keep in mind that your credit score does not have to be perfect, just in decent shape.
It may be a daunting task to delve into your financials, but with a reward such as a new house awaiting you, it is worth every minute spent in front of a calculator.