With interest rates rising, many people are rushing to buy a home early this season. If you are one of these people, then know that it’s especially important to get preapproved before you begin hunting for that dream home. With a competitive seller’s market, getting that proof gives you a leg up because the seller knows you’re “good for it,” so to speak. Here are some steps that will ensure you get the home loan that’s right for you.

#1: Determine what you can afford.

Being assured by a lender that you’re approved to borrow a certain amount doesn’t mean you can afford the sum. Despite laws that hold lenders more accountable than before the housing crisis, these companies are still known for offering larger loans than borrowers can afford. So, how do you know what you can actually afford?

• Look at what you’re currently paying for housing, and try to stick as close to it as possible.
• Look at the whole picture. Calculate the true expense by combining the principal, interest, taxes and insurance (an easy acronym to remember is PITI). What’s your down payment? If it’s less than 20%, you may also need to factor in an extra $50 to $300 per month for mortgage insurance. Don’t worry about the math though — there are plenty of online calculators that can help! Check out First Financial’s right here.

#2: Know what you’ll need to provide.

To get pre-qualified, a lender will ask simple questions about your income, assets, and debt. Preapproval means you’re offered a particular loan amount, so it’s a little more serious and usually comes with an application fee.

The lender will consider your debt-to-income ratio, your ability to repay the loan, and your FICO credit score (which influences your interest rate). To do this, they’ll run a credit check and ask for a list of financial documents, usually the following:

• Bank statements for the last few months
• Tax returns and W2s for the past few years
• Proof of employment and income (pay stubs)
• Anything else they believe could strengthen your loan application

Having these documents ready to go will streamline the process.

#3: Get your finances in shape.

Once you know what a lender will be looking for, work on anything that’s below standard. For instance, have you held a regular job for at least a few months? Lenders look for job stability. If you’ve jumped around, or if you’re considering a career move, staying put for now might improve your loan terms.

Have you taken on any new credit accounts or loans or closed old ones? Recent shifts in credit, such as getting a bunch of credit cards even if your intention was just to grab those sign-up bonuses, can affect your debt-to-income ratio and perceived financial stability.

Finally, take a look at your credit report and score. Is it below 620? You might have trouble qualifying. Is it at or above 720? You’re in the sweet spot for the best interest rates.

Simple things like making payments on time and paying off your credit card balance each month can improve your score and save thousands of dollars in interest over the lifetime of a loan. This process takes time though.

You really need to make sure you are ready to buy a house long before you even start planning to purchase it. If a home is at all on your radar, then start immediately and get prepared well before looking for a good mortgage lender.

Stop into any First Financial branch and we can help you with your home buying journey. We provide great low rates and offer a variety of Mortgage options – to speak with First Financial’s lending department, call us at 732.312.1500 option 4.* 

First Financial also offers a Mortgage Rate Text Messaging Service so you can receive updates on our low Mortgage Rates straight to your mobile phone. You can subscribe to our Mortgage rate text message service by signing up for text alerts, and receive instant notification when our mortgage rates change.**

*APR = Annual Percentage Rate. Subject to credit approval. Credit worthiness determines your APR. Rates quoted assume excellent borrower credit history and are for qualified borrowers. Your actual APR may vary based on your state of residence, approved loan amount, applicable discounts and your credit history. Higher rates may apply depending on terms of loan and credit worthiness. Minimum mortgage loan amount is $100,000. Available on primary residence only. The Interest Rates, Annual Percentage Rate (APR), and fees are based on current market rates, are for informational purposes only. Rates and APRs listed are based on a mortgage loan amount of $250,000. Mortgage insurance may be required depending on loan guidelines. This is not a credit decision or a commitment to lend. If mortgage insurance is required, the mortgage insurance premium could increase the APR and the monthly mortgage payment. See Credit Union for details. A First Financial membership is required to obtain a Mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.

**You must check the Text Message Signup box when registering in order to receive rate change text messages.⁺ If you do not receive an automated confirmation message after enrolling, please text “Yes” to (201) 808-1038

⁺The Text Message Signup box must be checked in order to receive text messages. Standard text messaging and data rates may apply.

Article Source: Jessica Sommerfield for MoneyNing.com