How To Prepare Financially to Apply for a Mortgage

How To Prepare Financially to Apply for a Mortgage

Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

While purchasing a home is a huge financial achievement, it can feel like there’s a lot you need to learn to navigate the process, especially when it comes to preparing your finances.

Below, Select breaks down a few steps you can take to make sure you’re as prepared for the homebuying process as possible.

Subscribe to the Select Newsletter!

Our best selections in your inbox. Shopping recommendations that help upgrade your life, delivered weekly. Sign-up here.

Make sure your credit score and credit report are in good shape

Your credit score is one of the most important factors that’s related to your financial health since lenders use this — as well as your credit report — to determine the interest rates you’ll qualify for when applying for any line of credit or loan.

Interest rates can make borrowing money even more expensive. The higher the rate, the more costly it will be to take on that loan or line of credit. The same idea rings true for mortgages as well.

Keep in mind that some mortgage lenders do cater to borrowers with lower credit scores. When applying for a new line of credit or a loan with a lower credit score, you’ll likely end up receiving a higher interest rate since the lender will view you as more of a risk.

Conversely, having a higher credit score typically results in getting a lower interest rate, making it more affordable to borrow money, so it’s in your best interest to work on improving your credit score before submitting any mortgage applications. Continuing to pay your bills on time is the most important thing you can do to help raise your credit score.

As for your credit report, double check it for any inaccuracies that may be bringing down your credit score and increasing your debt-to-income ratio and make sure everything looks right. Lenders will want to make sure your total debt isn’t significantly more than you can afford to manage before giving you a mortgage. Credit monitoring products like Experian (free) and IdentityForce® (paid) can help you monitor your credit report for any inaccuracies, potential fraud and identity theft.

Pay down any existing debt

Make sure you have an emergency fund

Marcus by Goldman Sachs High Yield Online Savings

Goldman Sachs Bank USA is a Member FDIC.

  • Annual Percentage Yield (APY)

  • Minimum balance

    None to open; $1 to earn interest

  • Monthly fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

  • Overdraft fees

  • Offer checking account?

  • Offer ATM card?

Ally Bank Online Savings Account

Ally Bank is a Member FDIC.

  • Annual Percentage Yield (APY)

  • Minimum balance

  • Monthly fee

    No monthly maintenance fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

  • Overdraft fees

  • Offer checking account?

  • Offer ATM card?

    Yes, if have an Ally checking account

Know your budget

Save enough for a down payment, closing costs and fees

Chase Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans

  • Terms

  • Credit needed

  • Minimum down payment

    3% if moving forward with a DreaMaker℠ loan

Closing costs are yet another set of expenses you’ll need to be prepared to pay when buying your home, and can add up to around 2% to 5% of the loan amount to your final price. They also encompass appraisal fees, underwriting fees, home inspection fees, credit check fees and title insurance and title search fees, among other fees.

Fees are inevitable when purchasing a home, but it can help to apply for a mortgage through a lender that reduces or waives them. Ally Bank, for example, won’t charge an application fee, origination fee, processing fee or underwriting fee.

Otherwise, be prepared to cover these fees so you aren’t left scrambling at the last minute to scrape together extra savings.

Ally Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, HomeReady loan and Jumbo loans

  • Terms

  • Credit needed

  • Minimum down payment

    3% if moving forward with a HomeReady loan

Pros

  • Ally HomeReady loan allows for a slightly smaller downpayment at 3%
  • Pre-approval in just three minutes
  • Application submission in as little as 15 minutes
  • Online support available
  • Existing Ally customers can receive a discount that gets applied to closing costs
  • Doesn’t charge lender fees

Cons

  • Doesn’t offer FHA loans, USDA loans, VA loans or HELOCs
  • Mortgage loans are not available in Hawaii, Nevada, New Hampshire, or New York

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

https://www.cnbc.com/select/how-to-prepare-financially-to-apply-for-mortgage/

Related Posts