Preparing for a Mortgage Loan
If you’ve decided to purchase a home in the near future, chances are it will turn out to be a great decision. Of course, it’s only the first step in a long process, one that tends to go smoothly with a wealth of knowledge and expertise at your disposal. Once you’ve settled on your desire to own a home, whether it will be your first or yet another one, you’ll need to know how to pay for it. Preparing for a mortgage with plenty of research and planning on the front end will set you up for success and savings down the line.
Set a budget
A house is often the most expensive purchase of a person’s life, and finding the mortgage that best fits your budget is one of the most important decisions you will make. That’s certainly a lot of pressure, so going into the process knowing what you want and what to expect is a great way to reduce some of that stress.
First, you need a budget for your new home. It might make sense to set a budget by browsing homes for sale in your area and looking for those with the features you want. However, it might be more financially responsible to start by figuring out what you can afford. The basic way to accomplish this is by tabulating your typical monthly expenses and comparing that to your monthly income.
Figuring out your monthly expenses can be a daunting task on its own. The U.S. Consumer Financial Protection Bureau (CFPB) offers these tips to make the process a little easier and more accurate:
- Refer to your recent bank and credit card statements going back at least a few months.
- Start saving receipts for every purchase you make and keep track of them.
- Sign up for a personal financial management tool to automate these and other tasks. myTrustmark® by Trustmark offers Financial Tools to help with your budget and track spending and income, among other things.
- Work to categorize every expense to understand which ones you can expect to keep in the future and which are temporary or might change later.
- Don’t forget to budget for savings toward an emergency fund, retirement and other long-term goals.
Once you have a good idea of your spending, it is easier to figure out how a mortgage will fit into that equation. Monthly expenses are rarely the same from one month to the next, and they can change completely in a short time. Doing your homework will allow you to set a ballpark estimate for a mortgage you can reasonably afford and put you on track toward finding a great home that fits in your budget.
Know what to expect
Especially for first-timers, buying a home is not something that should be rushed into in these very early stages. The CFPB estimates that half of U.S. adults don’t budget their household expenses at all. However, budgeting is a good practice, so don’t worry about spending a few months organizing and understanding your finances. While you’re at it, you can take a few other important steps toward getting in top shape prior to of applying for a mortgage.
The preapproval process
Before extending a loan to purchase your dream home, a mortgage lender will need to conduct some research of their own into your finances. Many people choose to get preapproved for a mortgage before they start actually shopping for a home. A mortgage preapproval is not a guarantee; it can give prospective homebuyers a firm understanding of the amount they can borrow, as well as the home they can afford.
The preapproval process involves a few key steps:
- Checking the applicant’s credit history
- Determining assets and monthly income
- Cross-checking that information with the lender’s own mortgage standards
This will require a lengthy application, as well as a few important documents to prove everything is accurate. When you are ready to apply for preapproval, be sure you have these things on hand:
- Personal identification documents like your birth certificate, Social Security card and driver’s license.
- Recent statements from any bank accounts or investment accounts in your name.
- Copies of completed tax returns for at least the last two years.
- Profit and loss statements, as well as recent tax filings, if you are self-employed or own a business.
- Canceled rent checks, if you currently rent property rather than own it.
- Signed letters from family members or friends who have given you money as a gift for the purpose of buying a home, if applicable.
One last tip as you prepare to apply for a mortgage involves your credit history. Since lenders will check every detail of your credit report, it’s wise to take a look at yours in advance to ensure everything is accurate, and that there are no surprises that might hurt your chances of being approved for a loan (like late payments or bankruptcy records). Even if your credit is spotless, consider holding off on applying for any new form of credit until after you’ve been approved for a mortgage. That includes applying for new credit cards or auto loans, both of which will reduce your credit score slightly.
Your local Trustmark mortgage professionals are eager to help ensure every step of the mortgage process goes smoothly for you. Connect with a lender today to get started.