By Melanie Foshee, Mortgage Lender, River Bank & Trust
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You have decided to buy a house, vacation home or refinance – and as simple as that sounds – there are a number of steps you should take to obtain the best possible mortgage. With some planning in advance you can put yourself in the driver’s seat.
Here are six steps to position yourself for a smooth process and a great rate:
1. Ensure your credit reports are accurate.
Suffice it to say, the better the credit score the lower the interest rate for a mortgage. Borrowers with a credit score of 760 will save hundreds of dollars a month and tens of thousands of dollars over the course of the loan compared to a borrower with a much lower credit score. Your all-important FICO score is derived from credit reports from the three major credit bureaus: Experian, TransUnion and Equifax. You can get a free credit report at www.annualcreditreport.com. It’s critical to make sure that your credit report is accurate. Mistakes can happen and need to be corrected.
2. Pay down debt.
You can quickly improve your credit FICO score by keeping credit card balances to 30 percent or less of the total borrowing limit. It is, however, important to have revolving accounts so the credit bureaus can accurately provide a credit score.
3. Pay bills on time.
If you use River Bank & Trust’s online bill paying service, you will always pay your bills on time. You don’t even have to think about which bill is due when. The online bill paying function automatically pays your bills on time. Late payments will negatively affect your credit score.
4. Avoid making major purchases.
You don’t want to add a major purchase on a credit card account or finance a major item when you are trying to qualify for a mortgage. This is especially true in the months leading up to applying for a mortgage.
5. Determine how much home you can afford.
Buying a home is much more than paying a mortgage. There are taxes and insurance and of course utilities, maintenance costs and sometimes association fees. You will most likely need equipment and tools to maintain a yard and may need to buy furniture. We have a mortgage calculator at www.riverbankandtrust.com to determine how much you can borrow based on monthly income and expenses. The rule of thumb is that housing costs should not exceed 28 percent of your gross income. Remember to set aside additional money for those other expenses.
6. Preapproval shows where you stand with lenders.
We will guide you through the preapproval process for a mortgage and our service is free. You will fill out an application detailing income and expenses. You will know how much you can spend on a house, which saves time by looking at houses in your price range. Being preapproved can also help in the negotiation process with home or property sellers.
NOTE: Melanie Foshee is a mortgage lender for River Bank & Trust in Alexander City.