House hunting online has become the new “Great American Pastime.” But before you go house hunting for real, it is strongly recommended that you get your mortgage “getting” house in order.
Mortgage financing is about 3 things; your credit history, the money you have set aside for the down payment and closing costs, and what you do to earn enough income to make the mortgage payments. Lenders will evaluate your credit, assets and income separately and in concert to determine your mortgage-ability, so before you apply for a mortgage, you need to make sure your financial universe is in proper working order.
The first thing you want to do is check your credit history/report/score and you can do that easily and free at AnnualCreditReport.com. This will allow you to access your credit report from all three of the major credit bureaus; Trans Union, Equifax and Experian. According to the American Bankers Association, less than half of all U.S. consumers know what their credit score is or have even seen their credit report. Your credit score is the primary determinant of your mortgage wherewithal and has everything to do with what kind of interest rate you end up with. Get your credit report early, print it out, take a highlighter to it and make sure whatever is on there is supposed to be on there. If you need help, get help, mortgage people will be happy to help you navigate your credit landscape.
Next thing you want to do is figure out how much money you have set aside, how much money you expect to accumulate or have access to, and how much you will need for a down payment and closing costs. This may seem like a simple exercise in addition, but maybe not. All that cash you have in the safe or under the proverbial mattress at home, that loan your friend promised you, the security deposit your landlord is holding and lots of other “assets” that are not traditional depository savings or investments, may not be eligible. As real as they are, you may not be able to include them as qualifying assets, at least as far as your lender is concerned!
There are all sorts of asset land mines that you need to be aware of, for instance; lenders will want to know the source of those large deposits made to your accounts and may even require pieces-of-paper proof of where they came from. Almost every dollar of your asset profile will need to be documented and updated to within an inch of your financial life, so you should make a detailed inventory of the amount and sources of all dollars you plan on using.
The almost last thing you need to do is to make sure your past and present employment history or whatever your source of income may be, meets mortgage-approval-underwriting-guidelines. Oh yeah, and you need to be able to prove that you have enough eligible income to cover the mortgage payments and any other debts that you pay every month. Lenders use ratios to compare your income to your outlay and you need to be within your means based on those measurements.
Employment and income sources, much like assets, can have lots of seemingly ok, perfectly legitimate circumstances that could be challenged by an underwriting guideline test. Length of time on a job or in an industry, being self-employed, tax return write-offs, hourly, salary, commissions, bonus, car allowance, you name it! Depending on your individual circumstances, it may or may not be eligible or documentable as a usable income source. The good news is that there are clear cut plug and play documentation and employment history guidelines that can help you determine the employment/income eligibility of your financial profile.
Once you have all of your credit, asset and income ducks in a row, then you can venture out into the real estate world and find an agent to help you buy a house. Here is the best part, the mortgage rep that helped you navigate your credit landscape, your asset profile and your employment/income history and eligibility, probably knows lots of great real estate agents who know all about neighborhoods and houses that you might like. Ask them for help with that too.