If you plan on purchasing a home this spring and financing with a mortgage here are some valuable tips on how to get “mortgage ready.”
Be prepared for lots of competition, rising prices, higher interest rates, less inventory, bidding wars, escalation clauses, homes under contract in hours not days, jam packed open houses. The list goes on and on.
Let’s take a deep breath and realize that what the market is telling us is that it’s important to be prepared this spring.
The first step in the process is to be pre-approved by a mortgage professional. A pre-approval will let you know how much home you can afford based on your financial position. The preapproval will also show the seller that you’re ready to buy the home and have the ability to close the transaction. This is an important step when you may be competing against cash offers or multiple bids.
The documents you will want to gather are recent paystubs covering one month income showing year to date earnings, 2 years of Federal 1040 tax returns including all schedules, 2 years of 1099’s or W-2’s, 2 months of bank and asset statements, mortgage statement / tax bill / condo bill /and insurance bill for all real estate owned. Additional documents that could apply are a divorce decree, Social Security award letters and pension statements, if retired.
A mortgage banker will review these documents to determine the usable income to qualify for the mortgage. A general rule of thumb is that lenders don’t want you to spend more than 43% of your gross monthly income on your mortgage payment and other obligations. Some loan programs go higher than this so it is important to work with a mortgage banker that has access to a variety of loan programs.
In addition to the financial documents you will need to have your credit reviewed. This will show what current liabilities you are responsible for. It’s important to have your credit reviewed so that there are no errors that could adversely affect your scores or debt to income ratio.
Because home values and interest rates have gone up, buying a home has become more expensive in 2018. One way to combat this is to increase your down payment. How much you can put down will help determine your pre-approval and monthly payment. If you can put 20% down, this will avoid having an extra Private Mortgage Insurance payment or PMI. Keep in mind there are a plethora of low down payment options for today’s home buyer.
Because our spring housing market on Cape Cod has been very competitive, you want to be ready to make an offer as soon as you find that dream home. If you wait too long or do not have a pre-approval you may miss out.
For this reason, you want to be pre-approved before home shopping.
Executive Mortgage Banker
NMLS Mortgage Loan Originator ID: 1020051
William Raveis Mortgage LLC NMLS ID #2630
Email [email protected]