Things to keep in mind before applying for a Mortgage

Are you thinking of buying a new house? Prepare yourself for one of life’s most taxing experiences. Because applying for a mortgage is a tricky thing but what makes it even tougher is you knowing what to expect. Because it can help you to plan everything a step ahead and get a mortgage in your favor, this planning requires you to brush up on your mortgage knowledge by keeping the following guidelines in mind.

Maintain an Accurate Proportion of your Income and Existing Debts

You must know beforehand how much loan you can actually afford. It is important both for you and the lender. Lenders always keep in mind if you are borrowing too much. So if you want your application to be accepted the first time, you need to understand the debt-to-income ratio (DTI). It is the ratio of your income that you’re spending each month to pay your debts, among other things. For instance, if your monthly pay is Rs 10,000, your mortgage will cost Rs 2,000 monthly, and all other debts add up to Rs 1,500, your debt-to-income ratio is Rs 3,500/Rs 10,000 or 35%. This percentage is important because lenders want you to have this ratio lesser than 43%. Each lender has a different offset but is always lesser than this. Also, it’s favorable if you don’t spend more than 28% of your income on your mortgage payment.

These are the tips you need to keep in mind before filing a mortgage application. Though you can always contact your lender to know more about any pre-qualification requirements beforehand to make the entire process smoother.’

Consider all relevant Mortgage Options

Before you start applying for a mortgage, it’s always a good idea to know your all mortgage options because there is a variety of them out there, and in order to pick the best, you need to see what each one of them is offering and what suits your needs the best. Also, since your mortgage may be the biggest debt you owe, you need to choose wisely. To make this decision, there are so many things you need to get yourself familiar with first, like the type of fee, the difference between fixed and adjustable rates, loan terms, and of course, the company’s reputation.

Improve Credit Score

Having good credit is very important. It says a lot about you to a lender because he can know if you are able to pay off your mortgage debt in the future, so better monitor, or rather improve your score before applying for the loan. Not only does the decision of loan approval depends on it but also it is the deciding factor in determining the interest rate, which is so important, given the amount of loan we are talking about here. It can, for sure, make a tremendous impact on the total cost of your mortgage over time. So there are few general ways that can help you improve your credit score.

  • If you have high account balances relative to your credit limits, paying down your balances will help improve your credit score.
  • If any inaccuracy, such as an incorrect listing of payment as late or missed, exists, report to your bank as soon as you can and get it corrected.
  • Avoid opening new accounts and closing old ones.

Start saving

Saving more will allow you to deposit a considerable amount of down-payment, which will save you from paying less in the long run. If you succeed in paying 20% of the mortgage loan amount as down-payment, you will not need to pay private mortgage insurance either, thus reducing your monthly payments. Thus it’s improbable for you to end up owing more than your home is worth. Even after owning a house, you need to have funds saved to handle any unexpected repair costs.

Get Paperwork done on time.

After you have ensured everything related to interest rates and your budget, it’s wise to gather all the important documents prior to your appointment because there’s a lot of it, and you don’t want to mess up near the end. Even a single missing document can delay your application. The important documents include proof of income, bank statements, proof of assets, tax returns, income statements, etc. You should get a complete list from your lender way ahead of the actual application filing day.

So to conclude, try to avoid making any such move that can jeopardize your application approval. There is no guarantee; after all, it’s just your advanced preparations that can increase your chances of a smooth loan application.

Leave a Reply