Taking out a mortgage is a big commitment. Doing so signals your readiness to borrow hundreds of thousands of dollars to purchase the home of your dreams.
But before you head to the bank and apply for a mortgage, you need to properly prepare. After all, taking out a mortgage takes time because banks want to make sure you’re a reliable borrower.
Here is what you need to do to prepare for a mortgage:
Start gathering documents
If you’re serious about buying a house, you’ll want to gather some important documents. These include the following:
- The contact information of your insurance agent.
- Updated driver’s license.
- Social Security card.
Next, gather your proof of employment. You’ll want to find the most recent pay stub, ideally from the last 30 days. Then you can collect tax information. You’ll need your full tax returns from the last two years and bank statements from the last two months as well.
Collect additional items needed
Once you’ve gathered those important documents, you’ll have an consultation with a lender. He or she may request further items of importance, should they apply. These documents can include:
- A divorce stipulation agreement.
- Bankruptcy papers.
- Child support orders.
It may seem like a hassle to gather these documents and pieces of information, but it’s one that you must follow through on. Otherwise, you may not be able to take out a mortgage.
Keep your debt low
Financial and personal documents aren’t the only things you need to get a mortgage. Financially, you should have a low debt-to-income ratio. This is the percentage of your income is used to pay off debt.
You should strive for a 43 percent ratio. If your DTI is too high, you can lower it by focusing on limiting credit usage and paying off old debt.
Save for a down payment
The final step in taking out a mortgage is ensuring you have enough money for a down payment. You should’ve spent the previous months or years saving because a down payment should ideally be 20 percent of a home’s price tag.
However, you don’t always need to save for a large down payment. You may be able to put as little as 3 percent down on a home. Keep in mind though, the higher the down payment, the better your mortgage terms will be.
When you’re ready to take out a mortgage, you’ll want to make sure you have important documents ready as well as a down payment. Once your request processes, you’ll find yourself in a new home in no time.