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Buying a home is one of the best ways you can invest in your future. However, getting a mortgage isn’t the easiest thing to do — and it isn’t necessarily a good idea to run out and get one right away. If you want a good rate on your dream home, there are several steps you must take to financially prepare yourself before talking to the bank about a mortgage.
Check out these 7 tips before getting a mortgage:
Get your credit report
Your credit score is going to be one of the first things the bank looks at when they’re thinking about giving you a mortgage. You can get a free copy of your credit report from any of the three major reporting agencies. Check the report carefully to make sure there aren’t any mistakes bringing your score down and take note of your actual credit score. The better your credit score is, the better your mortgage rate will be. Raising your credit score is one of the most important things to do before getting a mortgage. Ideally, you should aim for a credit score of at least 740 before you apply for a mortgage.
Lower your debt to income ratio
If you’re already feeling the squeeze from paying off your existing debts there’s no way you’ll be comfortable paying for a mortgage on top of the debts you already have. Paying down your other debts will also raise your credit score. You can also lower your debt to income ratio by asking for a raise or getting a second job.
Don’t get any new credit cards
Getting a new credit card may sound like a good idea — after all, if you don’t spend much on it, you can lower your debt to income ratio this way — but if you get a new card too close to your mortgage application it can completely mess up the numbers.
Tighten your budget
The more you can put into a down payment, the better your mortgage terms will be. Padding your emergency savings to cover mortgage payments if you become unemployed is also a good idea. Choose a staycation instead of traveling, cook more of your meals at home, be stricter about your clothing budget. Even if you can only squeeze an extra $100 out of your budget every month you’ll significantly increase the size of your down payment.
Interview real estate agents
Everybody’s heard horror stories about unscrupulous real estate agents. You want to make sure you get the best deal on your dream home, which means you need to vet your real estate agent carefully. Interview a few different agents who work in the areas where you would like to live.
Check out different banks
If you have a good relationship with your bank they’ll probably get you the best deal, but making assumptions can cost you a lot of money. Shop around with different banks and credit unions in your area. Check out at least three different places and make sure you ask each one about their qualification criteria as well as their rates.
Get preapproved
You’ll have a much easier time getting your dream home — and making sure you don’t go outside your budget — if you get preapproved for a mortgage. Many buyers won’t even look at you if you haven’t gone through this part of the process.
Final Advice
As eager as you might be to move into your new home, rushing into it is one of the worst things you can do. You’re going to live in this home for several years, potentially the rest of your life. Take the time to really evaluate what you want in a home and how much you’re willing to spend on a mortgage, both on a monthly basis and in the long term.
