How to Obtain a Mortgage

In the previous article, we discussed all the costs of buying a home. Once you are ready to take the plunge and begin looking for a home to purchase, the very first thing you should do is become pre-approved for a mortgage. It is highly recommended that you go through the pre-approval process before you begin seriously looking for a home. Many northern Michigan homebuyers find their dream home, only to discover that they cannot secure adequate financing. In this article, we’ll discuss how to get pre-approved so you know exactly what to expect.

credit cardFirst, your credit history as a borrower is extremely important. Lenders obtain a credit report on potential borrowers to determine the risk of loaning them money. If you have less-than-ideal credit due to problems like missed student loan payments or outstanding credit card debt, lenders may only offer you smaller loans with higher interest rates, or may even refuse to finance your home purchase. Problems can also arise if you have no credit history, since lenders will not have reliable evidence that you will repay the loan.

If you do not know your credit history, you can obtain a free report once per year at The free report will show your creditors, but may not list your numerical score. Borrowers with a credit score of 740 or higher typically qualify for the best mortgage rates. Even if you have subpar credit, there are steps you can take to improve your score over time. We will discuss this in a separate article.

Second, lenders will want to know about your current income and existing debts. They will require proof of your income, so be prepared to provide up to several years of tax returns, bank statements, and/or paystubs. This can be particularly difficult to navigate if you are self-employed or work part-time. Even if you are confident in your income, you must prove to the lender your ability to repay the loan. Typically, lenders look for your monthly mortgage payment to cost no more than 28% of your total income before taxes.

A measure called debt-to-income ratio factors in other debts such as student loans or car payments to show lenders how much of your monthly income will go toward paying existing debts. To calculate your debt-to-income ratio, divide your monthly income by your monthly debt payments. Lenders typically will not finance mortgages that would cause a borrower’s debt-to-income ratio to exceed 43%.

Third, the amount of cash you have will affect your qualification for a mortgage. Lenders want to ensure you have cash for your down payment, closing costs, the first several months of insurance and tax payments, and extra funds in case of emergencies. If the down payment and closing costs will suck your cash reserves dry, lenders may refuse to finance your mortgage.

Once you are prepared in the three ways mentioned above, the next step to become pre-approved is to contact your local bank or mortgage lender.

If you are interested in hiring a professional realtor who can guide you through this process, Donna Gundle-Krieg loves working with people and would be happy to provide you with more information. She has many exciting listings available in great Antrim County locations, which you can view here. You can contact her at (231) 350-8507 or to learn more.

Next: Improving Your Credit

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