You’ve wanted to buy a home for years. Maybe you know how many rooms you want, what neighborhoods you want to live in, or even the style you want the house to be.
But before you step into any open houses, you should understand what you need to have in order to buy a home. And in today’s housing market, getting pre-approved for a mortgage is essential.
Here’s what you need to have ready to buy your dream home with a pre-approved mortgage.
Saving is essential
Saving is one of the most important prerequisites for getting pre-approved for a mortgage. But it’s the step that can also take the longest.
Most of what you’re saving for are your upfront costs, like the downpayment on a home, closing costs, or maintenance fees. For perspective, you can expect to pay between 5 to 20 percent of the value of your future home for the downpayment. You’re also saving for the new expenses of owning a home, like maintenance and updates you may need to make.
Follow these tips to learn more about saving for your future home.
Get your credit in good shape
Your credit score indicates the probability of you paying back your loan on time. This number is based on your credit history: the number of open accounts, total debt, repayment history, and other factors.
If you’re thinking about buying a home, you need to start building your credit score. You can check out these three tips to grow your credit score today.
Debts
Along the same lines, you’ll need to consider the total debts you have when taking on a mortgage. Your debt and debt repayment history will not only affect your credit score. It will also affect the size of the mortgage you are qualified to have. Lenders might think you’re stretching your finances too thin to afford the payments if your debts are too high.
Calculate how much debt you may owe, like student loans, credit cards, or car repayments, and develop good habits about paying back those debts. Also, make sure you don’t take on any new debt before you start your home buying journey.
Income Verification
Mortgage lenders at Bank Midwest advise future homeowners to follow The Rule of Two for their income verification.
When you apply to pre-qualify for a mortgage, you will present proof of two years of employment, pay stubs, savings and checking account history, etc. This will help you build a strong application that reflects reliable income to pay back your mortgage.
Post updated. Original published February 2022.
Want to learn more about what to expect in your home-buying process? Listen to Dream, Plan, Live: the Bank Midwest podcast to learn more about getting your dream home.