If you’re a first time home buyer or if it’s been a while since you last purchased or refinanced a home, you might not be sure when to apply for a mortgage. Many highly qualified realtors will be looking for you to be pre-qualified for a mortgage before working together. So, how do you know if you’re ready to apply for a mortgage?
Your Credit Score is in Good Shape
Credit is a huge factor in applying for and receiving a mortgage. Not only does your credit score affect whether or not you will qualify for the loan, it also determines the cost to borrow. A better credit score will net you a better interest rate, and you’ll pay less over time.
Make sure you don’t have any judgements or accounts in collections. If you do have adverse actions on your credit report, resolve them as quickly as possible to have the best odds of qualifying at a great interest rate. It’s also important to have a long history with your creditors – even if your credit cards have a zero balance, keep them open to show that you have years of positive account history with your creditors.
Finally, make sure you avoid opening new lines of credit in the months leading up to applying for a mortgage. The number of recent inquiries can negatively affect your credit standing. Not sure what your credit score is, or if it would qualify? Our team would be happy to answer those questions for you!
Your Income is Sufficient to Qualify
Before you apply for a mortgage, it is important to know if your income will allow you to qualify for and carry a mortgage. Typically, you should plan to spend about 28% of your income on your mortgage and any associated fees (like mortgage insurance and taxes). We can help you determine how much house you can afford and approximately what your monthly payment will be.
Your monthly income is also an important part of your Debt to Income (DTI) ratio. This is a measure of how much money you make on a monthly basis, versus the amount of debt payments you are responsible for. Your DTI is a huge factor when determining if you will qualify for a mortgage, and how big of a loan you can take out.
The amount of time you’ve been at your job will also lend strength to your DTI. If you’ve been at your current job for at least a year, then this would be a great time to apply for a mortgage!
You’re Financially Prepared to Take on a Mortgage
The next big question you should ask yourself is am I financially prepared for the cost of a mortgage and homeownership?
Initiating a mortgage and purchasing a home can come with a few upfront costs. First, you’ll need to have your down payment saved up. Depending on the programs available to you and what your payment goals are, you will need to put down anywhere from 3.5%-20+% of the mortgage amount in order to secure the loan. Talking with a qualified broker will help you determine what type of down payment you should be prepared to make.
Also keep in mind that you will need to pay for an inspection on the home you make an offer on, and there may be other closing costs that need to be paid up front as well. In addition, a new home can come with unexpected repair costs, upgrades, and other moving expenses. Make sure you’re prepared to handle a reasonable amount of unexpected expenses.
Ready to Apply for a Mortgage?
If your credit is in good shape, your income is sufficient, and you’ve got enough funds in the bank to move forward with a purchase, then you’re ready to apply! Not sure if your credit score and income are in the right range? Begin a short and simple pre-qualification application to find out – we can you pre-qualified in 30 minutes or less. It is my goal to educate and guide my clients so they can make smart, well-informed decisions about their mortgage investment. I’m happy to answer your questions and help you secure the best mortgage offer available – contact me today to get started.
