In uncertain times, people want security, and there’s no safety net quite like having a home. It’s an appreciable asset that builds credit, and it means you’ll be building equity, quite unlike giving your money to a landlord each month. The process of getting a home can be confusing and stressful, especially when it comes to getting that all-important mortgage; however, you can make the transition from renter to homeowner much faster by following these three steps to getting a mortgage.
Work on credit repair
Unless you have a stellar credit score already, there are probably some black marks on your record, which can spell bad news when it comes to accessing a mortgage. Many lenders only want to work with those who have great or excellent credit, as they can be almost guaranteed that you’ll faithfully pay your mortgage.
It’s easy to despair when it comes to this topic, especially as most of us don’t like to talk about our finances with other people: it feels uncomfortable and vulnerable. However, this is an incredibly important factor in whether you waltz into a new home or stay in your current residence, so you’ll need to set aside your pride for now and look for solutions to your problem.
One of these options is credit rehabilitation, which is when you work with a company that will look at your credit history and searches for problems to dispute. This can include things like closed accounts that were falsely labeled as having a remaining balance, or missed payments that were actually made on time.
If you were the victim of identity theft, it’s even more important to have a credit rehabilitation company carefully examine your credit scores with the three bureaus and dispute anything that might have been missed when you originally found out about the problem. It might cost a bit, but the payoff will be enormous when you consider that a great credit score will help you access the best mortgage rates.
Pay down your debts as much – and as quickly – as possible
This might seem like a no-brainer, but you’d be surprised about how many people don’t realize what a huge impact this can make on your credit score, as well as how fast this can boost your chances of getting a great rate on a mortgage.
There are two reasons that this is important: one has to do with your credit score directly, while the other will be revealed when you apply for pre-approval on a mortgage. The first reason is your debt-to-credit ratio, which is how much debt you have in relation to the overall credit available. For example, let’s say that you have $20,000 credit available to you across all lines of credit, the bulk of which is probably made up of credit cards. If you’re only using $1,000 of that, you have a debt-to-credit ratio of 5%, which is considered fantastic by lenders, who are looking for a debt-to-credit ratio below 30%.
The second reason is your debt-to-income ratio, which is how much you owe on your debts compared to your yearly income. Lenders might shy away from someone who has very high debt in comparison to their income, as they believe this puts you at risk of defaulting on a mortgage. Both debt-to-credit and debt-to-income ratios impact your approval odds, so it’s extremely important to pay off as much debt as you can.
Paying off debt can seem overwhelming, especially as you’re also saving for a down payment and closing costs, but remember that small steps can make a big difference. Commit to paying a bit more than the amount owed on your credit cards or loans every month, focusing on the smallest debts first so that they’re completely cleared.
Work with a mortgage broker
Another fact that people might not realize when they begin their home search is that working directly with a bank isn’t the only option – nor is it always the best one. If your local bank has an excellent mortgage rate, you might be tempted to jump on it right away, but you might be missing out on an even better rate that could save you thousands over time. This is why working with District Lending can be the difference between an acceptable rate and one that’s better than you ever could have imagined.
There are numerous benefits to working with a mortgage broker, but the most important one is that they can help you access the very best rates for your mortgage. Since they work with numerous lenders – even up to 90 at a time – they can use the information you provide to shop around and find the best rate for your situation. More than that, they can ease and speed up the process, by giving you step-by-step instructions on how to get approved for a mortgage.
As they’re highly experienced in all the legalities of mortgages, they can alert you to issues before they become serious problems, and help you find solutions for anything you might face. They’ll be there for you as you get settled into your new home and could assist in finding an even better rate as economic circumstances change, so you’ll never be paying more interest than absolutely necessary. It can seem like a small thing, but even a shift of 0.01% of the interest can translate to thousands of dollars over the long run.
With these three simple secrets, the mortgage approval process will be a breeze, and you’ll be in your brand-new home before you even know it! Follow these steps to securing a mortgage: you’ll be so happy that you did when you step over the threshold of your dream house.
