Teaching Kids to Be Responsible with Money

Important Steps Before Getting A New Mortgage

by Ian Wallace

Are you interested in buying your own home? Aside from saving money for a down payment, are you trying to find out what sort of preparation needs to be done before you can start looking for your dream home? There are many things to do or not to do before you apply for a mortgage. When everything is done correctly, you'll be moving into your new house before you know it. Some of the most important things that need to be done or avoided include:

Decide how much you can afford: When applying for home mortgage loans, you and the bank will often have differing opinions on exactly what you can pay. This is based off of things like your yearly salary, your credit score, and the current interest rate. However, you should also factor in various expenses that you have now or may experience in the future. If electricity is expensive in your area, for example, you may need a smaller and less expensive house that has lower heating and cooling bills. You should also remember that you'll need to be prepared to replace water heaters, refrigerators, and other big-ticket items that you may not have had to purchase while renting.

Don't close credit cards: When preparing to buy a home, it's tempting to close credit cards that you don't use. The annual fee could, after all, be put towards your down payment. But closing credit cards can actually hurt your chances of getting a mortgage. When banks assess people for home mortgage loans, they look at not only how much money they owe but also how much money they could owe. If you have a $5,000 credit limit on various cards but have only used $500 of it, this looks better than having a $1,000 limit and the same $500. If you recently closed one or more accounts, the lender may wonder things like whether you did that to try to get a handle on impulse spending that could make you late on your bills. An annual fee is a small price to pay for a slightly better credit rating.

Set up a separate account for your down payment: Having large sums of money sitting around in your regular account can make it more tempting to spend "just a little" on some item that you don't really need. A separate account for your down payment money will help to cut down on the temptation. In addition, when going through the process for home mortgage loans, a bank may want to verify where your down payment money came from. They'll want to confirm that you didn't obtain it illegally and that it's something you can actually afford. Having a separate account for the money will help with the verification process.

For more information, contact local professionals like Dave Schell at Guaranteed Rate Mortgage.