Applying for a mortgage is both nerve-racking and exciting. You’re about to become a homeowner, which is a major life milestone. You’re also going to cut a lot of red tape to get there, which is not the best way to spend an afternoon. If you want the process to roll as smoothly as possible, you’ll need to set yourself up for the easiest ride possible.
1. Calculate a Reasonable Budget
The last thing you want is an outlandish mortgage that you won’t actually be able to juggle. Living outside of your means will make everything harder. Get a firm grasp of your annual income and expenses, including the expenses you’ll incur as a homeowner. If you currently live in an apartment that includes utilities, keep in mind that you’ll need to pay them on your own in your new home and they might be higher there.
Once you figure out how all of your expenses stack against your income, you’ll then have a better idea regarding the size of a mortgage payment you’ll be able to pay without putting yourself in the poorhouse. See how much of a down payment you can save up on a home you can afford to roughly calculate what your mortgage will be.
2. Come Up With a Timeframe
When do you want to move? How long will it take you to put yourself in an ideal position to move? Don’t pull the trigger until you’re ready. It’s better to wait longer and get all of your ducks in a row before you make such a major financial commitment. Unless your situation is incredibly urgent (like relocating for a job), take as much time as you need to get things organized.
3. Research Where You Want to Live
You may not know exactly the house you want to buy, and there’s no way of telling whether or not it will still be available by the time you’re ready to purchase it. You might know the general area in which you want to live, but property values vary from neighborhood to neighborhood. Even if you’ve narrowed it down to Sydney, Australia, you’ll need to research the area of Sydney in which you want to live. You’ll have a realistic idea of how much you’ll need to spend.
4. Manage Your Current Credit Situation
Don’t open any new credit cards or take out any new loans. Start paying off outstanding debts and car payments. Get your credit into the best possible shape before you apply for a mortgage. Your current balances are going to count against you, so minimizing how many open lines of credit and loans you currently have will put you in better standing. Keep your wallet shut, and close any accounts you no longer use.
5. Be Smart With Your Savings
You’re going to need your savings for padding. While it’s possible to make close estimates, it can be hard to know exactly how much you’re going to need to spend until after you’ve moved. You’re also going to need your savings to produce a sizeable down payment on your new home. The more you have put away, the better you’ll be. It might be a wise idea to start looking into high yield savings accounts or safe investments to extend your money.
6. Seek Pre-Approval
Pre-approval will give you options. When you talk to a lender about pre-approval, they’ll tell you the maximum amount you qualify for. Just because the maximum is high doesn’t mean you need to take it – if you know that a mortgage for such a large amount will make your life difficult, you can always purchase a home for much less. When you’re pre-approved for a mortgage, you’re home shopping with a safety net. There won’t be any surprises later.
It might take you a while, but sooner or later, you’ll be the homeowner you’ve always dreamed of being. Financial diligence and patience are the two most important elements of getting a mortgage the right way.