Mortgage Prep before applying
One prevalent observation throughout my years in the mortgage industry is that approximately 70% of clients seeking a mortgage are ill-prepared for the process. Understanding mortgages and financial products is not something typically taught, leaving many individuals unaware of the specifics involved. Lending officers often encounter surprise when I ask fundamental questions about their bank's lending procedures, because most clients are unaware of the general procedure. To ensure you are fully prepared to purchase your desired home, follow these essential steps:
Assess Your Current Financial Situation: Mortgage lenders typically impose a guideline that your total monthly expenses—including the new mortgage—should not exceed 40% of your gross income. Take time to evaluate your current debt levels to ensure you are not already approaching this threshold.
Check Your Savings: In today’s fluctuating economic landscape, banks prefer lending to individuals who demonstrate financial stability backed by solid savings. It is crucial to have at least 5% to 20% of the home purchase price set aside. This not only shows lenders your commitment but also buffers against unexpected costs associated with homeownership.
Know Your Qualification Amount: This step may provide a candid realization regarding your financial readiness. Contact several banks to inquire about your qualification amount or utilize an online mortgage calculator. This figure is derived from the sum of your monthly debt payments plus the projected mortgage payment. Divide this total by your gross salary and multiply by 100%. Should this percentage exceed 40%, you will not qualify for the desired mortgage. Consider adjusting the mortgage amount or identify debts that can be paid off to bring your ratio below the necessary threshold.
By following these initial steps for mortgage preparation, you can pinpoint necessary adjustments and gain clarity on your readiness to proceed with your home purchase.
