Have you started thinking about applying for a mortgage? If so, there are a few things you should do beforehand to make sure you’re as prepared as possible. Here are 8 things you should do before applying for a mortgage:
Know your credit score–
This is one of the first things lenders will look at when considering you for a mortgage. If you have a high credit score, it will give you a better chance of being approved for a loan with favorable terms. You can get a free copy of your credit report from each of the three major credit bureaus once every 12 months.
Get pre-approved for a mortgage–
A pre-approval letter from a lender shows sellers that you’re a serious buyer and gives you an advantage over other buyers who are not pre-approved. Getting pre-approved for a mortgage in Massachusetts or other states in the US also lets you know how much house you can afford.
Know your down payment–
The more money you have for a down payment, the lower your monthly mortgage payments will be. Many lenders require a down payment of at least 10 percent of the purchase price of the home.
Shop around for a mortgage–
You don’t have to get your mortgage from the same bank that holds your checking or savings account. Shop around and compare rates, terms, and conditions before you decide on a lender. Ask questions about the fees, points, and other charges associated with the loan.
Understand the different types of mortgages–
There are many different types of mortgages available. Some common types are fixed-rate mortgages, adjustable-rate mortgages, and government-backed loans such as FHA loans and VA loans. You’ll need to decide which type of mortgage is right for you based on factors such as your down payment, credit score, employment history, and financial goals.
Get rid of debt–
One factor that can influence the terms of your mortgage is your debt-to-income ratio. This is the percentage of your monthly income that goes towards paying debts. Lenders prefer to see a debt-to-income ratio of 36 percent or less. If your ratio is higher, you may be able to get a lower interest rate by paying off some of your debts before applying for a mortgage.
Save for closing costs–
In addition to your down payment, you’ll also need to have money saved for closing costs. These are the fees associated with getting a mortgage, such as appraisal fees, loan origination fees, and title insurance. Closing costs can vary depending on the type of loan you get and the lender you use, but they typically range from 2 to 5 percent of the loan amount.
Get homeowners insurance–
Once you have a mortgage, you’ll need to purchase homeowners’ insurance. This type of insurance protects your home and belongings in the event of damage or theft. It also covers you if someone is injured while on your property. Your lender will likely require you to have homeowners’ insurance in place before they approve your loan.
Follow these tips and you’ll be on your way to a successful mortgage application. Make sure you shop around and compare rates, terms, and conditions before you choose a lender. And don’t forget to get homeowners insurance to protect your investment.