Wednesday, August 21, 2013

Things You Should and Shouldn't Do Before Applying for a Home Loan

When we purchased our new home last year, we had no idea all of the things we would have to do before our loan was approved. We worked with an awesome financial adviser who gave us really great advice so that our loan would be approved the first time and we wouldn't have to go back and do the process all over again. It was a lot of work and took several months but in the end, we were able to obtain a home loan for the perfect house for our family! We were searching for a four bedroom home in town but it had to have a great back yard and we were able to find just the one we were looking for AND we got our loan approved the first time we applied. 

*Know your credit score and what is on your credit before you apply. We were shocked to find out we had a lien on our credit for a tax error from a decade ago. It was only a $50 discrepancy that ended up costing us nearly $1,000 with fees and interest. We never regularly monitored our credit so we had no idea it was on our report. It also took a lot of time because we had to wait until the lien was released before our loan could be approved and it potentially could have cost us the loan! 

*Make sure all of your bills are paid on time every month. Most people don't realize that every time you pay something late, your credit score could potentially suffer. The lower your credit score, the higher your interest rates are going to be which obviously results in a higher mortgage payment. 

*Avoid making large purchases. This was the number one thing that we were advised to do. Do not go and make a new vehicle purchase when you are getting ready to apply for a loan. Large purchases will increase your debt to income ratio which could ultimately lead to non-approval of the loan or higher interest rates. 

*Save for a down payment and closing costs. Depending on what kind of loan you get, you could have a significant amount of money due at closing. In addition to down payments, closing costs can really add up if you have to pay them yourself.  

*Pay off any high interest debt that is on your credit report. 

*Get an itemized list of all costs so you will know what to expect at closing. We ended up having to pay nearly $2,000 to the mortgage company we went through that we had no idea we would have to pay. Get everything in writing so you aren't surprised when it's time to sign! 

*Know what you can afford before you start looking at homes. There is no reason to look at $300,000 homes if you can only afford half of that. Our financial adviser did an amazing job helping us figure out how much we could afford before we even started looking at homes. We didn't want to fall in love with a home and later find out we couldn't afford it. 

Don't ever rush into a big purchase whether it's a home, a luxury car or anything else that is going to significantly raise your debt. Take your time and make sure you have everything lined up before you try to buy. 


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