So your house hunting process has begun, and you’re ready to start thinking about finances. Buying a home is among the biggest purchases you will make in your life time, and being prepared for that commitment is crucial. You want to make sure you are setting yourself up for financial success, while also finding a place that feels like home. In order to support your new nest, it’s likely you won’t have hundreds of thousands of dollars to pay for the house up front, so you are going to have to get approved for a mortgage. When going about the process of getting approved for a mortgage, you should first know what it is. Thanks to sites like Zillow, you can read a little bit further on what exactly makes up the different aspects of a mortgage and the fees attached.
What it takes to get approved
Before you even consider buying a home or stepping in an open house, there is a list of things you should know about your personal financial situation, (thanks to MoneyUnder30):
- Your monthly income
- The sum of your total monthly debts (all the payments you owe, such as credit card payments and loans)
- Your credit score/any credit issues you have had in the past
- The amount of cash you’re able to put down
- How much you can afford
Monthly financial obligations
First, compile a list of your monthly income. When we say list, we mean if you have a partner that you share your funds with, figure out the sum of your earnings, and the dollar amount you have coming in consistently each month. After that, you will need to calculate your monthly debts. Your monthly debts are bills you pay each month consistently that will continue in the future. Examples of monthly debts include car payments, student loan payments, and any other loan payments you might have.
Your lender will most likely require anywhere from two to four of your past pay stubs, so it’s a good idea to begin saving those as soon as you begin thinking about moving.
Since there will only be a certain margin between your income and your debts, the more debts (loans you have) to pay back, the size of your mortgage will be limited. Large monthly debts will lead you to only being able to afford and get approved for a smaller monthly mortgage and vice versa. There are several different online mortgage calculators to help you investigate whether or not you would be able to afford a certain mortgage price.
Meeting with a lender
Meeting with a lender is the first step in pre-qualifying for a mortgage. In this meeting, you will provide all the information you have compiled about your income and debts. Your lender will then take that information into account when calculating how much you can afford to pay for a new home.
Pre-Qualification vs. Pre-Approval
Since meeting with a lender is a quick process, the pre-qualification is only an estimate, and only gives the amount which you might be expected to be approved. The next step is to get pre-approved. Getting pre-approved is a much more involved process and will include a mortgage application. This application will allow the lender to have all your information and do a more extensive investigation into your financial history and your current situation. They will then be able to pre-approve you for a certain amount. The pre-approval gives you a written commitment of how much your exact loan will be, and how much interest you will be paying over time.
Having a cosigner with disposable income greater than yours can allow you to get approved for a higher mortgage if your income is not large enough. This cosigner is assuring the lender that the mortgage will be paid, even if they are not living with the individual requesting the loan. However, this is not an option if you are irresponsible and are planning on being unable to make payments. This is only an option if you and the cosigner are confident you will be able to make monthly payments but you have an income lower than the lender is willing to consider.
Another option is to be patient and wait out the state of the housing market, if you have time. Sometimes if the economy is on a downturn or the housing market is unstable, lenders are less likely to be generous with their loans. If you are able to wait until the housing climate returns to a more stable place, you may find that a lender is willing to be more accommodating.
Try another lender – Sometimes, one lender might approve a loan that another would not. It at first you are not approved and are still 100% confident you will be able to make your payments, try going to another lender. However, with the following lenders, do not give any inclination that you are desperate for a loan: they might be more likely to boost interest rates or fees if they know you are scrambling. If you are consistently turned away, however, it’s not the lender – it’s your finances.
Overall, it’s important to know the offers and options available for you. You are going to have a long term commitment of paying for your home, so you want to be sure you find the right mortgage plan to fit your lifestyle.