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Reviewing Your Finances Before Your Home Purchase

Advance preparation will increase your chances of successful mortgage loan approval. You should start with a clear view of your financial situation. You will need it to prepare your budget, your realtor will need it to assist you with the mortgage loan process, and the mortgage lenders will need it to determine your eligibility for a mortgage loan.

Review Your Credit Report

Order your credit report from the three major credit bureaus, Equifax, Experian, and TransUnion. You can find numerous online sources where credit reports can be ordered free of charge or at a minimal cost.

Review Your Savings, Assets, and Annual Income

The average buyer purchases a house that is 1½ -2½ times their annual income.

Review Your Debts

Mortgage loan approval is based on debt-to-income ratio. Your monthly debt should stay between 36%-40% of your gross monthly income. A mortgage payment should not exceed 28%-29% of your monthly income.

Do not make any large purchases on credit right before submitting a mortgage loan application. This will only increase your debt-to-income ratio. It is advisable to pay off or pay down credit cards and other small loan balances. This further decreases your debt-to-income ratio and increases the possibility of a lower interest rate on your mortgage loan.

Develop a Monthly Budget

A realistic budget will keep you on a solid financial track before and after the addition of the mortgage loan payment. An accurate representation of your financial stability is essential in order to move forward with the purchase of a house. Advance preparation will also show your realtor and potential mortgage lenders that you are willing to put forth the effort to ensure approval of a mortgage loan at the best rates and terms available to you.

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