Buying a home is one of the most significant investments in your life. It’s one that takes time, preparation, and research. If you know you want to buy in 2019, particularly during the spring market, start preparing now.
Getting pre-approved for a loan feels like the first actionable step when buying a home, but there is some legwork that needs to be complete before you walk into a lender’s office.
Use the guide below as you prepare for pre-approval for a home mortgage.
Lenders require good credit. A credit score is determined by payment history, balance-to-limit ratio on credit cards, length of credit history, recent activity, and type of credit used. Depending on the type of loan, many lenders will be looking for credit scores above 600. The higher your credit score, the better chance you have of securing a loan with good terms. You can usually check your credit score through your credit card company. There are also a number of free credit score checks that can be completed online.
To become pre-approved for a mortgage, lenders need to go through your current and past finances. In addition to pulling their own credit report, lenders will ask for:
- Federal Tax Returns
- Most recent pays stubs
- Bank statements
- Retirement and Investment account statements
- Driver’s License
If applicable, you will also need to provide:
- Divorce Decree/Separation Agreement/Child Support Order
- K1s or Business Tax Returns
- Mortgage statements for other properties owned
- Student loan documentation
Determine Your Budget
As you gather your paperwork and look over your finances, this is an excellent time to set a limit on your budget. What is your maximum monthly budget? Remember to factor in homeowner’s insurance, property taxes, and HOA fees, if applicable. You will also need to determine how much you have for a down payment. This step will prepare you for how much of a loan you are willing to take out.
Prepare for a Down Payment
Do you already have a down payment saved? If not, you will need to set up a plan to save funds. Most loans require a minimum of 3.5% as a down payment (with good credit), although this may be higher depending on the type of loan you take out. You will also need funds to cover closing costs, which are typically between 2% to 7% of the home.
Research the Market
While researching the market isn’t completely necessary for the lender’s office, it will get you mentally prepared for the types of homes and neighborhoods that fit into your budget. If you know your maximum budget is $300,000, start looking at houses in that price range. This will give you an idea of what you will be able to buy.
Many home buyers get discouraged early in the process simply because they were not prepared. Knowing your finical situation and the market will help make your journey enjoyable.
Are you preparing to buy in 2019?