Owning a home is an exciting goal that many people would like to achieve. Mortgage companies allow people to live their dreams by offering them the ability to finance their new dwellings. However, a consumer should go through a slow process before he or she chooses a lender to finance a home. The person must take several steps to ensure that he or she has a maximum opportunity to receive the best financing option available. The following are five things that a person should do before he or she applies for a home mortgage:
1. Calculate Disposable Income
The first step in the process of applying for any loan should be calculating disposable income. The disposable income is a figure that can tell a consumer the amount of money that he or she can spend each month. The disposable income figure consists of the total monthly income minus the total monthly bills. A debtor can calculate a rough disposable income figure with a paper and pen. Monthly income includes all reliable sources of income such as self-employment funds, employee paychecks and pension benefits. Monthly bills include expenses such as utility bill expenses, rent, auto loan payments and more.
2. Obtain a Copy of the Credit Score
Next, the consumer will want to obtain a copy of his or her credit score and report. The credit score will have a huge impact on a mortgage or home loan. Lenders will base their approvals on whether the consumer has a good credit score. Additionally, credit scores determine the interest rates in a home loan. The borrower will want to visit the mortgage company with the highest credit score possible. All three credit bureaus must supply a person with a free copy of his or her credit report at least once per year. The consumer can then view the information in the report for accuracy. He or she can dispute any account that does not seem legitimate. A removed account can raise the person’s credit score enough to place him or her in a respectable bracket, and that bracket can produce fair home loan interest rates.
3. Compare Loans and Lenders
The next step in the process of finding the right home loan is comparing loans and lenders. Several types of loans are available, and they each have their advantages and their disadvantages. For example, a fixed-rate loan has the advantage of foreseeable payments. The borrower always knows exactly how much he or she will have to pay each month. Adjustable mortgages change over time after an initial fixed period. The consumer can choose a conventional loan or a government-insured loan, as well.
4. Research Available Lenders
The last part of selecting a lender is research. The comparison tool or site should connect the debtor with several reliable lenders. The debtor should then research the lenders’ rates, processes, affiliations and consumer ratings. An honourable lender will have a myriad of positive reviews and not many negative comments from consumers.
5. Gather the Necessary Documentation
The debtor will want to choose a lender from the list of top lenders and then gather the appropriate documentation for an application. The lender will ask for pay stubs, tax returns, leases and and other bill documents. Gathering two years’ worth of paperwork is the best procedure. Mortgage loans are extensive processes. Therefore, the consumer should take any steps necessary to shorten the process and ease the burden. A reliable mortgage lender will find the perfect product for a consumer who wants to own a home.