A mortgage is one of the biggest loans you’ll take out in your life. Mortgage lenders often have strict requirements for applicants – you need to be sure that you’re able to meet these requirements. Below are just a few ways in which you can make sure that you’re ready to apply for your first mortgage.
Decide Your Budget
First, you need to decide exactly how big a mortgage you can reasonably afford. A bigger mortgage means a bigger down payment and larger monthly installments. It will likely depend on the property you need and the location that you plan to buy in. There are still some states where you can buy a 2 bed house for under $100k. Meanwhile, in major cities, this won’t even get you a studio apartment. If you can’t reasonably afford a mortgage on the property you want in the area you want, consider whether you need to make compromises (i.e. choose a smaller property or different location) or delay your plans.
Save up a Suitable Down Payment
To apply for a mortgage, you usually have to pay a down payment. The average down payment in the US is about 7%. This means that if you’re planning on buying a $200k property, you’ll likely need to save up a down payment of $14k to be considered by most lenders. Saving up a down payment can take a long time – this post at Investopedia.com offers advice on where to put your savings to build them more quickly. The more you save up, the more options you have (it’s worth saving up a couple thousand on top of your down payment for other costs like the valuation fee and hiring a solicitor).
Get Your Finances in a Good Place
Are your finances in a good place? When you apply for a mortgage, lenders will ask to look at about 6 months of previous bank statements as well as checking your credit score. You should avoid missing any bill payments or taking out any emergency loans 6 months before applying for a mortgage – this will make you look like a responsible spender and increase your chance of getting approved. You also don’t want to have a low credit score when applying – building your credit score may be necessary if it is currently low. Finally, make sure that you’re earning a stable and large enough income. Avoid getting a new job six months or less before you apply for a mortgage.
Shop Around for Quotes
It’s worth shopping around for multiple quotes to find the best mortgage deal that you can. There are sites like MortgageQuote.com where you can apply for a quote. Some lenders will require lower down payments, offer longer terms or may charge lower interest rates. By comparing quotes, you can find the most affordable option. Don’t just apply for the first mortgage you can find as it may not be the best deal.
Make Your Application
Once you’ve established a budget, saved up a down payment, got your finances in order, and found the best quote, you can start your application. It’s at this point that you can seriously consider looking at properties and choosing a home. With any luck, provided that you’ve prepared adequately, your application should be approved!