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Associated with hectic paperwork, massive documentation and grueling credit checks, mortgage financing is often an intimidating venture for many prospective homeowners. Recent property bursts have also resulted in stricter and tougher lending conditions, which usually mean that loan applicants may take several weeks or months before they can secure loans. Yet, with meticulous preparation, the process of obtaining a mortgage can be less complicated and even pleasurable.
In fact, according to mortgage financing experts, buyers should begin preparing as early as six months to the year when they plan to start shopping for mortgages. Commencing the process earlier allows enough time for restructuring and reducing debt obligations in order to meet the qualification criteria outlined by the lenders. Similarly, with the down payment for mortgages ranging from 5-20%, borrowers need enough time to save some money for the down payment, and to shop around for the best rates and terms.
Mortgage lenders usually require several documents before they can issue loans. Some of the most common documents are bank accounts, investment and checking accounts, W2s, pay stubs, cancelled rent checks, income tax returns and other property tax returns. Since the failure to deliver these documents in time can cause huge delays in processing the mortgage, it is crucial to contact potential lenders in time in order to know the types of documents they require, and to piece together all the documents well before applying for mortgage. Besides, since prospective lenders usually conduct thorough scrutiny of the financial lives of borrowers, it is important that a person planning for mortgage financing prepares thoroughly to write letters explaining all aspects of their financial oddities.
Eliminate Potential Hurdles to Mortgage Financing
During the months leading to a property purchase, it is important to maintain a clean credit profile and to avoid changing credit obligations. All actions that may affect or hurt your credit score must be avoided because they can increase the interest rate and fees on the loan, or disqualify you from mortgage financing. Therefore, you must avoid opening and closing credit cards, and must keep card balances within normal range. If you are self-employed, you should document all your income and even consider reducing the number of deductions on your earnings in order to improve your overall income. Likewise, if a friend or a family member is gifting all or part of the down payment to you, the amount being gifted should be deposited in your bank account at least two months before your mortgage financing application so that the bank does not have to consider it a huge deposit.
Getting a Pre-approval
In order to determine exactly how much mortgage you will afford, you need to consult and work with several lenders in order to get loan preapprovals and to determine the necessary monthly payments. Start your preapproval process by asking friends, workmates and family members for recommendations. Then, you should wind up the process by choosing a lender you can comfortably work with. After choosing a lender, you will need to arrange for your prequalification. Typically, prequalification means having a verbal conversation about your financial information with the mortgage financing institution. The conversation will culminate in a preapproval letter, which will show that the mortgage lender had assessed your full credit history and financial picture, and established the loan amount that you can acceptably hold. The preapproval letter is a powerful tool during mortgage financing negotiations.
Plan Your Closing Costs
Borrowers must prepare and plan for the closing costs that are associated with their targeted mortgages but which are not part of the down payments. Typically, planning anywhere between 3-percent and 4-percent of the home purchase price will help to effectively cover for the costs of processing and generating mortgages.
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