Be prepared! A truly great motto, not only for the Boy Scouts of America, but also for anyone embarking on today’s new mortgage process. Through my own quest for Eagle Scout, the many rigors of the high school and college years, and on to gainful employment, marriage and raising a family, “being prepared” has always been a cornerstone of my life. If you’re beginning today’s mortgage process either as a first time buyer or as an experienced homeowner, I cannot stress this old motto enough!
The first step in getting prepared for your new mortgage is going through the “pre-qualification” process with your loan officer. Don’t wait until you are excited at an open house and want to make an offer on a new home or until you have the “for sale” sign on the home you are selling. Get organized well in advance!
My pre-qualification typically begins with a 10-minute phone interview. Here I gather all of the pertinent personal and employment/assets information so that I can be organized and efficient in our follow-up face-to-face meeting. In terms of your preparedness, we are going to want to assess two factors as soon as possible: your goal for a comfortable, affordable monthly mortgage payment and a thorough review of your current credit report.
Many people compare the amount of their present rent payment as a benchmark for a comfortable, affordable mortgage payment. The mortgage industry considers PITI or PITIMI (principal & interest, insurance, taxes, mortgage insurance and also condo fee if applicable) as “total monthly payment”. Utilities, cable, credit card, auto, student loans etc. are not a part of this figure but are obviously a part of your total budget. If you are living with family and do not pay rent or if you have a mortgage and are selling your current house I highly recommend giving this concept of “comfortable affordable monthly payment” some serious consideration. If you study your budget and arrive at “your monthly payment” then we can more effectively target a purchase price point that you should be shopping for. This really maximizes your time and helps you not to over-extend yourself with a monthly mortgage payment.
The second step for your initial preparedness is a thorough evaluation of your current credit report. Today’s mortgage rates are tied to your credit or FICO score. Credit scores are tiered, for example 680-700, 700-720, 720-740 etc. and a score of 740 or higher helps you to qualify for the best interest rate. If you are near a tier cut-off there might be simple steps you can take to improve your score and help yourself to qualify for a better interest rate. It’s also important to evaluate your credit beforehand because you may have errors on your report, trade lines that are in dispute, old medical or other collections, or even authorized use of a family member’s credit card that has a high monthly payment or late notice damaging both the amount of mortgage you may qualify for and your interest rate. If you have student loans that are in deferment these inevitable monthly payments have to be calculated as future debt. Many of these situations require your attention and can take a substantial amount of time to resolve. If you take the time to be prepared you will get off to a much better start to your mortgage process and really enable yourself to focus on what’s most important – your beautiful new home!
Next time I’ll talk about down payments and sourcing funds, two other areas that compliment good home-buying preparation!