Apart from a chosen few, many people start their home ownership journey with a mortgage. A mortgage helps you to buy the house of your dreams, move in and pay for it in the next ten or twenty years of your life comfortably. However, unlike paying cash, buying a home via mortgage involves a lot of steps that begin even before you find the house you want.
Here is what you should expect if you want to apply for a mortgage soon:
Before you even step into a bank to get prequalified, it is necessary to qualify yourself and see how much disposable income you have. Take two or three months to monitor your spending and how much you save every month. The mortgage lender will look at your income and all financial statements to tell you how much they can lend you. This will help you to know your budget so you don’t shop for a house you can’t afford.
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Check your credit score
Unfortunately, most people don’t know their credit score and how it affects your ability to get a loan. Before considering a mortgage, you must check your credit ratings because it will affect your interest rates if you qualify for the loan.
You will produce a lot of documents
The most frustrating aspect of getting a mortgage is the amount of documents you will be asked to produce and sign. The lender will want you to bring in two or more recent pay slips, tax returns, previous two years’ W-2s and two months bank statements. The lender has the right to ask for any document that proves your worthiness to pay for the loan and the sooner you submit the documents, the better it will be for you. The lender will also ask you a lot of questions and it is wise to answer all of them truthfully.
Appraisal is a step that the mortgage lender will have conducted on your dream home to protect their interest. A third party appraiser will go to the property and look at the appearance of the house, square footage, amenities and current condition to see if it is indeed worth the money. The appraisal is needed so that the bank is assured of recovering their money in full in case you default payments and they have to resell the house.
When buying a house via mortgage, you can expect to raise at least 20% of the total cost on your own. This down payment is usually a commitment to show that you are serious about the house so they can give you the remaining 80%.
With the mortgage rates for a 30 year period hitting 4.5% within the last few days, it is wise to say that people need to buy houses while they can still afford them. However, unlike paying cash, you can deduct your mortgage interest on your taxable income hence saving some good cash.