Ready to buy your first home? Before you hire a real estate agent, go through the online real estate sites and schedule open house visits, there are some things you should consider. It’s certainly not as much fun as the shopping but it’s probably more important. Make sure that you are ready to be approved for a mortgage. In many cases, having the expertise of a California mortgage broker can help.
Mortgage approval can be a stressful time, especially if you’re not prepared for it. But if you do your homework first, your mortgage approval can go smoothly with few surprises. Here are some things you should do preemptively as a first-time buyer.
Check Your Credit
One of the first things a lender will look at is your credit score. It is one of the single biggest indicators of your creditworthiness and how you take care of your financial obligations.
Make sure you look at all three of your credit reports from Experian, Equifax and TransUnion. Lenders will typically look at all three scores and then use the middle score to qualify you. If there are any issues on any one of them, get them attended to BEFORE you apply for a mortgage.
Look at Your Monthly Expenses
Another indicator of your creditworthiness will be your debt-to-income ratio. When you apply for a mortgage, the lender will evaluate your DTI to determine how much money you can afford to borrow. Your debt figure will include things like
- Monthly home payment
- Any revolving loan payments
- Car payments
- Credit card payments
- Any other debt
They will take this figure against your income and any other money you receive each month such as alimony, child support or investment income. What is considered the maximum DTI will differ depending on the mortgage product but consider 43 percent figure the absolute highest that you want.
Consider How Much Home You Can Afford
The standard has always been a 20 percent down payment for the best possible mortgage terms, but this is often not possible. If you can’t afford 20 percent down, you will end up paying a monthly premium for what is called mortgage insurance. This ensures the lender in case of your default since they are taking a greater risk with a lower down payment.
When you are calculating how much you can afford for monthly mortgage payments, you will have to consider any mortgage insurance premiums over and above the principal and interest payment each month. You will also need to factor in how much taxes and insurance your lender will take each month to hold in escrow.
Make Sure You Can Document Your Income and Expenses
Your lender will want documented income and expenses when viewing your application. This means that your income and financial assets must be verifiable.
Any monies you are using must be “seasoned” and have been in the same account for a few months prior to a mortgage application. A gift of a down payment can be used but this also must be verified and only from an acceptable donor.
If you are a first-time home buyer, your best resource is often a professional California mortgage broker. At Granite West Funding, we would be glad to help. Call us today at 559-540-2275.