If you plan on applying for a mortgage loan then here are some steps that you need to know:
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1. Mortgage Budget
Before ever speaking with a mortgage officer, you’ll want to determine how much house you can afford and are comfortable paying (two different things!) A good rule is that your total housing payment (including fees, taxes, and insurance) should be no more than 35 percent of your gross (pre-tax) income. For example, if together you and a co-buyer earn $80,000 a year, your combined maximum housing payment would be between $2,333 a month. That’s an absolute, max, however. I recommend sticking with a total housing payment of 25 percent of gross income, and you’ll find other readers here who are even more conservative.
2. Credit Report
As a borrower, it is important to obtain credit reports from each of the three major credit bureaus, and examine them carefully. Incorrect information can cause higher rates, or keep the borrower from getting a mortgage altogether. It’s estimated that over forty percent of all credit reports contain errors. Any discrepancies need to be corrected as quickly as possible.
The lender does the best possible job of ensuring that a borrower qualifies for a loan. The final decision, however, rests with the lender’s underwriter, who measures the total risk that the specific investor, who backs up the loan, is taking. Each investor (or investment company) has its own underwriting guidelines (often using statistical models), so while the underwriters evaluate many of the same factors as the lenders, they may look more closely at some areas than others, depending on the guidelines. For example, while the lender may have pre-approved you before you chose a home, by the time you get to underwriting, you will have chosen the property you want to buy, and the underwriter will review the property details closely.
Hopefully, these tips will make you more ready for your mortgage application.