You've decided you are finally ready to take the plunge and become a home owner. Before you start picking wall colors and flooring, you need to prepare for the mortgage process. David Sant with Cyprus Credit Union shares his favorite steps to take as you prepare to apply for a mortgage.
Pull Your Credit Report
You need to make sure there aren`t any collection notices or delinquencies that could hinder your application process. This is also your chance to dispute any incorrect information that you find, such as a credit inquiry that you didn`t authorize.
Save For a Down Payment
Most traditional loans call for a 20% down payment; however, there are some options, such as a FHA (Federal Housing Administration) loan which only requires 3.5% down. The more you have saved up for a down payment, the more likely you are to get a lower interest rate on the loan. It could also help you stand out amongst the competition if a bidding war takes place down the line.
Pay Down Debt
A mortgage payment is going to take up a chunk of your income. Take a look at some of the other debt you are currently carrying and come up with a plan to start paying it off.
Don't Apply For New Credit Cards/Loans
Every time you apply for new credit, something called a hard inquiry takes place on your credit. These inquiries can knock your credit score down a few points. Applying for several lines of credit at one time isn't a good idea when you`re getting ready to apply for a mortgage. This may signify to lenders that you rely too much on credit, making it difficult to receive a loan.
Once you get everything in order and you are ready to start house hunting, it's time to get pre-approved. This is not the same as being pre-qualified. With pre-qualification, a quick look will be taken at your finances to see what you could possibly afford. With pre-approval, you will fill out a loan application and receive a conditional agreement on the amount of the loan.
Find out more at cypruscu.com.