Lending – Getting Your Finances in Order

The Lending Process – How to Get your Finances in Order.

The home buying process can be a complicated one, but there are a few things that you can do to be prepared so that when the time comes, you’re ready to make that leap. It’s all about the prep work – it may take a little time, but you’ll be glad you did.

6-12 months before you’re ready to start looking:

Obtain a copy of your credit reports, and check over them carefully. There are options available online, or you can meet with a lender who will help you determine where you stand so you can prepare.

You’ll want to make sure that:

  • Your personal data is correct (think email, address, employment, etc.)
  • Payment history
  • Open accounts (are they still open? Closed)
  • Negative information that should be off your record
  • Incorrectly reported information

3-6 months before you call your agent:

Review your budget. As a rule of thumb, your housing expenses (mortgage, rent, etc.) should make up approximately 30 percent of your monthly budget. Determine what, if anything, you can do to cut down on expenses and reach this goal to make sure that you’re able to confidently handle a mortgage expense. When getting approved for a mortgage, your lender will give you a quote based on your DTI (debt to income ratio) – while the amounts vary, you’ll want to be under about 28-40% or less of your monthly income. If that amount isn’t where you’d like it to be, now is the time to seriously consider cutting back on expenses and paying things down to increase your available income.

30-60 days before you call your agent:

Call your lender. As much as you may think you’re ready to get out there and start looking, before you do that you need to be assured (as does the person who’s home you’ll be buying when you first make your order) that you’re able to follow through to closing. You’ll want to be sure that you’ve gathered all relevant data so that the process moves smoothly.  These items are:

  • W2s, 1099s and other proof of income
  • Bank Statements and retirement account statements
  • Tax Returns
  • Paystubs

That’s a good place to get started. Keep in mind, when you’re working towards getting your mortgage (even after your offer has been inspected and before the final closing), you’ll want to keep a tight reign on your finances. Don’t open any new accounts, and make sure to keep up to date on payments to keep your credit where it was when you received your pre-approval letter.