7 Must-Do’s Before Shopping for a Mortgage

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Owning your own house is a hallmark of independence as well as a major investment. It is one of the most exciting milestones in your life. However, shopping for a mortgage is decidedly less invigorating. You have your credit score to think about and whether you even qualify. It can be a lot of work, so start early. Take care of the following before you start shopping for a mortgage.

1. Your Credit Score

The first step is your credit score. How high or low it is will have a big effect on the mortgage you receive. In general, a higher number translates into lower payments. According to the Seattle Times, getting a mortgage when your credit score is less than 660 (or for some lenders, less than 680) means that you are going to need to put more money down and you could have to pay additional fees. In general, to get the best rate, you will need a credit score of more than 750.

2. Qualifying for Credit

Further, you may need a minimum credit score to even qualify for a home loan. “While there are many qualified borrowers in the 580 range, the market today is probably (looking for) 640 to 660, at a minimum,” says former U.S. Department of Housing and Urban Development official Vicki Bott. In other words, it doesn’t matter how much money you make, how little you owe or how much you can put down — you could still be denied a mortgage.

3. Deciding on a Mortgage Budget

Would-be homeowners should also decide on a budget. Any loan from the Federal Housing Administration will require that your mortgage payment not exceed 31 percent of your income except under specific circumstances — and even that could be on the high side. The Credit Union National Association advises that your mortgage payment not be more than 28 percent of your gross pay, and Dave Ramsey suggests a maximum of 25 percent of your take-home pay. Being more conservative with your budget means that you have extra cash available for the type of expenses homeowners have to endure, such as a new roof or maintaining your furnace.

4. Pay Off Debt

One top suggestion is to pay off any debts you have before you begin the mortgage application process. Credit card debt can be a real hindrance to getting approved, but other debts play a role as well. Car loans, medical bills and student loans can eat away at your monthly cash flow. Aside from impacting your credit score, it may also play into the amount that the bank is willing to approve and the amount of payment you can comfortably make each month. You will need to keep debt payments in mind as you decide on a budget. Making a plan to pay them off before applying for a mortgage means one less thing to think about.

5. Save Money

Remember that buying a home requires certain upfront costs. You will need to cover closing costs as well as a down payment. Many conventional loans are going to require 20 percent down. Even if you have enough in your bank account to cover that lump sum payment, will you have enough left over to weather a storm if a worst-case scenario happens and you lose your job or the home requires extensive work before you have time to rebuild your savings? These are important issues to consider.

6. Credit Report Review

Before you attempt to purchase a home, you should also have someone review your credit report. This way, you can identify any potential issues BEFORE you begin applying for loans. At Ovation Credit Services, we review your report to see if there’s anything affecting your score before you start the mortgage process and can advise you on the next steps to take to improve your odds of getting the best home loan rates and terms possible.



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7. Credit Repair Is Possible

If your credit report needs some work or you aren’t happy with the interest rates and terms your credit score will garner you, remember that credit repair is possible. Working with an established company like Ovation helps ensure that you aren’t penalized for debts that have already been paid or settled. We can also help you identify areas you could target to improve your credit score.

It’s tough to take a hard look at whether you can actually afford to buy a house and what your price range really gets you. Having an outside party take a look at your credit report gives you a more objective perspective into what lenders like to see and the factors that play into your credit score as well as the impact your credit score has on the terms and interest rate you receive for your mortgage.

Sources:

HGTV: What to Know Before Buying Your First Home
http://www.hgtv.com/design/real-estate/what-to-know-before-buying-your-first-home

Dave Ramsey: 5 Must-Dos Before You Buy a Home
https://www.daveramsey.com/blog/5-must-dos-before-buy-home

Seattle Times: 6 Must-Dos Before Buying a Home
http://www.seattletimes.com/business/6-must-dos-before-buying-a-home/

U.S. News & World Report: 7 Things to Always Do Before Buying a Home
http://money.usnews.com/money/blogs/my-money/2014/06/25/7-things-to-always-do-before-buying-a-home