One of the most important steps in the home buying process is the mortgage phase.  Many buyers don’t realize why it’s important to get pre-approved for a mortgage when buying a home.

Getting a mortgage is something that buyers need to prepare for.  It’s something that should be thought about well before deciding to walk into a bank or mortgage lender to get approved.

When preparing to get a mortgage there are certain tips and tricks that should be followed.  The process of getting a home loan differs from getting a car loan or renting an apartment, and applicants who don’t recognise these key differences are often disappointed when a lender denies their mortgage loan application. The tips for preparing to get a mortgage do not apply to every buyer because of varying circumstances.

Below are some of the top tips to be aware of when preparing to get a mortgage.  By following the below tips you’ll have a much better understanding of how you should be getting prepared to get a mortgage which should make getting the process started as stress free as possible.

Make On-Time Payments

One of the top tips for preparing to get a mortgage is to make sure you’re making on-time payments.  This may seem very silly to be discussing, but the number of potential buyers who are planning to purchase a home and aren’t paying their bills is staggering.

There are many bills that you need to make sure you’re staying current with as you prepare to get a mortgage.  Remember to continue to pay your credit cards, car loans, student loans, utilities, rent, and current mortgage on time.

All of these bills can have a major impact on your ability to get a mortgage.  One of the most common bill that is not paid on time by potential borrowers, especially millennials, are student loans.  The impact that student loans have on getting a mortgage is enormous and paying them on time is crucial, like all bills.

Review Credit Lines

One of the most important mortgage overlays, also commonly referred to as mortgage guidelines, are the number of trade lines that a potential borrower has.  A trade line is a fancy word for account.  As you’re preparing to get a mortgage, you need to review the trade lines that you have.

Most lenders will require that a borrower has at least 4 trade lines open when getting a mortgage.  In order for a trade line to be considered and show up on a credit report when getting a mortgage, they must be actively paid off for 12 months.

If you do not have 4 trade lines open a mortgage lender may allow alternative credit references such as cancelled rent checks or a letter from your auto insurance company, utility company, cell phone carrier, or other obligatory accounts.  It’s important that as you pay your bills that you document the payments.  For example, if you’re paying rent, make sure you’re paying with a check so that you have documentation showing consistent, on-time payments.

If you don’t have enough established accounts or trade lines, it’s suggested that you open a secured credit card with a small maximum credit limit such as $500.00.  On this credit card you should only maintain a balance of $20-$30 and ensure you’re paying the full balance in full each month, on-time.  If you continue to pay off this small monthly bill, you’ll eventually establish another trade line to use towards getting approved for a mortgage.

Monitor Credit Balances & Scores

Monitoring Your Credit Score Is Critical While Preparing To Get A Mortgage

Monitoring Your Credit Score Is Critical While Preparing To Get A Mortgage

A very common reasons why mortgages are denied after a pre-approval is because a buyer decides to run up the balances on their trade lines.  It’s important as you’re preparing to get a mortgage to buy a home that you monitor your credit balances.

It is a very bad idea to max out your credit cards and other lines of credit.  The higher the balances are, the lower your credit score will be.  The impact that credit scores have on getting a mortgage is big.  If you have a low credit score because you have large credit balances, you’ll have a higher mortgage interest rate which can cost you thousands of dollars over the life of the mortgage.

Pay Off Any Collections

One mortgage FAQ that is frequently asked is whether or not to pay off any collections when getting a mortgage.  It’s extremely important that before you apply for a mortgage that you pay off any collections.  A collection on a credit report can be devastating.  As you’re preparing to get a mortgage, make sure that you review your credit report and ensure you don’t have any collections.

It’s not impossible that a lender won’t approve a mortgage with a collection, but the chances are much less.  As you pay off collections, it’s vital that you receive the proper documentation that proves the collection has been settled, even if it’s for less.  This may include keeping a copy of the check that was used to payoff the collection or copies of any correspondence from the payoff.

Reduce Debts

A critical variable that is used when getting approved for a mortgage is a potential borrowers debt to income ratio.  Depending on the type of financing a potential borrower is looking to secure will determine how much debt they can have in relation to their income.

As you’re starting to think about what type of mortgage is best, you need to keep in mind what your debts are.  Another great tip as you’re preparing to get a mortgage is to reduce your debts as much as possible.  The lower your monthly debts, the greater the amount a mortgage lender will allow you to borrow.

Stay at Your Job

I know someone who quit working seven days before she and her husband were to close on their mortgage loan. I have no idea why, and unfortunately, it didn’t turn out well for them. They weren’t able to close on their new home and they lost out on a great deal.

Sticking with your employer while going through the home buying process is crucial. Any changes to your employment or income status can stop or greatly delay the mortgage process.

Lenders approve your home loan based on the information provided in your application. Taking a lower-paying job or quitting your job to become self-employed throws a wrench in the plans, and lenders must reevaluate your finances to see if you still qualify for the loan.

Be Cautious Opening New Accounts

While preparing to get a mortgage, do not open up any new accounts unless absolutely necessary.  Opening a new credit account typically requires a hard credit inquiry to be completed.  A hard credit inquiry can impact your credit score and potentially make your credit score lower than what is required by a mortgage lender.

An important thing to keep in mind is that if you decide to co-sign for someone, you’re not only likely adding a hard credit inquiry to your credit report but also adding additional debt.

Start Saving Money

Money Saving Tips For Preparing To Get A Mortgage

Money Saving Tips For Preparing To Get A Mortgage

One of the most important things to keep in mind as you’re preparing to get a mortgage is that you’ll need money to cover some of the costs of buying a home.  The costs of buying a home include real estate taxes, underwriting fees, down payment, and homeowners insurance.

Saving money is important whether you’re looking to make the minimum down payment or whether you’re looking to make a large 20% down payment in as a way to eliminate private mortgage insurance.  Below are five tried and true tips that can help you save money as you prepare to get a mortgage.

  1. Create a monthly budget – A great way to save money is to create a monthly budget.  In order to save money you must make more money than you spend.  Creating a monthly budget is a great way to review what you’re monthly bills are and identify which bills you may be able to reduce or eliminate.
  2. Create a separate home buying fund – As you’re preparing to get a mortgage and are attempting to save money, one of the biggest reasons why buyers aren’t able to save money is because they don’t have an account setup for their home purchase.  Whether you’re a first time buyer or buying your fifth home, opening a separate account designated solely for your home purchase is a great way to save money.
  3. Work more – If possible, a great way to save money is to work more hours.  If your job allows you overtime or bonuses, working more hours is a great way to make additional income that can be saved in anticipation of getting a mortgage.
  4. Make savings automatic – One reason why many buyers fail to save money to buy a home is because they don’t have a system in place to save money.  A great way to save money is to automate your savings and have a set amount of money sent to your savings account from every paycheck.  This eliminates the chances you’re tempted to spend the money you should be saving. Tech startups like Piggybank and
    Corywise are taking the lead on helping Nigerians (especially the millennials) save money easier and smarter. The concept of automatic savings using any of these apps is simple; the app automatically removes a set amount from your account as scheduled and put in a saving account that you cannot be withdrawn until a set time has elapsed.
  5. Reduce your retirement savings – It’s extremely important to plan for the future, however, as you’re preparing to get a mortgage a great way to save money is to reduce the amount you’re putting aside for retirement.

By following the above 5 tips for saving money you’ll have a solid amount of money set aside for your home purchase.  Whether you’re attempting to buy a home with little or no money or looking to put a substantial amount of money down, it’s important to save money as you’re preparing to get a mortgage.

Final Thoughts

As you’re preparing to get a mortgage to buy a home, it’s critical that you know what you should be doing.  It’s far too common that buyers do not prepare themselves to get a mortgage and when they attempt to apply, they are not pleased with the outcome.

By following the above tips for preparing to get a mortgage you’ll greatly improve the chances that you get the pre-approval amount that you desire as well as the top mortgage interest rate.

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