Ten Things to do Before Applying for a Mortgage – Part I

With interest rates so low and real estate deals to be found, now is a great time to begin planning your Seattle area home purchase. In order to ensure the lowest cost mortgage and greatest likelihood of financing, make sure you do these things before you apply.

1. Pay your bills on time, every time.

Every late payment puts a ding in your credit score. That score directly influences the interest rate on your future mortgage loan. The more late payments and delinquencies you have on your credit report, the higher your interest rate. The higher your interest rate, the higher your monthly mortgage payment. The higher your monthly payment, the less home you can afford. You get the picture.

2. Save, even if just for closing costs.

Some lenders offer the option of rolling closing costs into your mortgage. However, doing so means you will be paying interest on those costs. Instead, start saving for the fees associated with closing a loan as soon as you possibly can. Closing costs frequently run three to six percent of the loan amount. If you are planning to obtain a $275,000 mortgage, you will need to save up to $16,500 to cover the closing costs.

3. Pay off high interest debt, when possible.

If you have a significant amount in savings for a down payment and closing costs, good for you! You may want to use some of those funds to pay off your high interest debt, such as credit cards. Yes, this will leave you with less for a down payment. However, because mortgage interest is tax deductible, and your interest rate will likely be lower than what you are paying on those credit cards, you could actually end up saving more.

4. Avoid making big purchases.

Don’t take an expensive vacation on your credit cards. Don’t finance a new car. This sort of activity serves as a red light for mortgage underwriters. Big purchases take money away from your down payment and closing costs savings. When financed, they also increase your debt-to-income ratio –not a good thing when you want to secure a low mortgage interest rate.

5. Determine what you need in a home.

What you want in your new home may differ from what you actually need. Spend some time clearly defining each category. If you are unable to find homes within your budget that have all your “wants,” you may still find one that covers the “needs.” Your Realtor® can be an invaluable tool in this process.

Check back soon for part two of our “Ten Things to do Before Applying for Mortgage” series. We are certain you will find it helpful if you are considering buying a home in Issaquah, North Bed, Sammamish or anywhere in the Seattle area.