Some 92% of homebuyers finance their purchase with a mortgage, according to the National Association of Realtors. Yet only 8% of buyers started their house hunt with a call to a bank or mortgage lender. Sound backward? It is. But Houston homeowners Anjuan and Aneika Simmons did it the right way. When the Simmonses started searching for a home, they examined their finances to determine how much they could afford to spend. “We went online and used different sites that had tools and calculators to help you decide whether you want a fixed- or variable-rate mortgage,” says Anjuan. “Then, we did the math on how much of our income we wanted to spend on our mortgage [payment].”
Anjuan, 35, an IT consultant, and Aneika, 36, a business professor at Sam Houston State University, took mortgage shopping just as seriously as the process of finding the right home. In today’s climate of stricter lending guidelines, taking an educated approach to finding a mortgage isn’t just smart, it’s essential. A 2009 study by the National Association of Realtors revealed that nearly a third of home buyers found their mortgage application and approval process to be more difficult than they expected. Another 2009 survey of real estate professionals suggested that more than half of failed home sale transactions fizzled due to mortgage-related issues, including the inability to qualify under tighter standards.
So, how should you shop for a home loan? And what’s the smart approach to selecting the right loan? Here are some steps to guide you:
Step 1: Do your “home” work—assess your financial status. Before meeting with a lender, gather a basic snapshot of all personal financial information the lender will request from you. Order a copy of your credit report and scores from all three bureaus: Experian, Equifax, and TransUnion. The Simmonses found errors they were able to correct before talking with a mortgage professional. Although a banker or mortgage broker will eventually pull copies of your credit reports, you should walk in knowing your score so you’ll know if the figure they give you seems off.
Also, be clear on how much cash you have available for down payment and/or closing costs before talking with a mortgage broker or bank. Gather financial documentation, including tax returns for the past two years, your most recent W-2 or 1099 forms, and the last two months of bank statements. Showing up prepared puts you in a power position and communicates you’re an informed consumer who needs to be taken seriously.
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