With uncertainty over mortgage rates growing and new Fannie- and Freddie-backed programs rolling out next year, those seeking to buy a home will continue to contend with changing standards. If you’re planning to become a homeowner, take these steps before borrowing.1. Get preapproved. Stay ahead of the game by actually getting preapproved for a loan – not by getting an estimate from a lender. Not sure if you’ve been officially preapproved? Take note of what your mortgage professional does – if your credit report was submitted to an underwriter, you’re in good shape.
2. Don’t alter your credit habits. Don’t risk hurting your credit score while securing a mortgage. Keep all balances within normal range and avoid opening or closing credit cards – your debt-to-income ratio may suffer.
3. Avoid moving funds. To mitigate your financial liability, put off moving funds until after you’ve closed on the home. That means no cashing out on investments, retirement accounts or CDs. Additionally, don’t use your savings to pay off debt or fund a CD – this can be a red flag to lenders.
4. Get your down payment gift early. If family is helping you with a down payment, have them deposit the money in your account more than two months prior to applying for a loan. You’ll avoid hassle with the banks trying to track down the source of the funds.
5. Create a PDF of all documents. Round up all documents related to your finances: bank statements for checking, savings and investment accounts, pay stubs, W-2s, tax returns and canceled rent checks. Compile these into one PDF for your lender’s convenience.
6. Be prepared to write letters. Lenders will want to know details about every potentially harmful financial scenario before approving your loan. If there are any discrepancies in your financial history, such as frequent moves in a short amount of time or a substantial monetary gift, be prepared to explain these situations thoroughly in a letter.
7. Cut costs on mortgage insurance. The new Fannie Mae and Freddie Mac mortgage programs require as little as three percent for a down payment – but insurance premiums through the FHA will come at a higher cost. Opt for private mortgage insurers, which generally have cheaper premiums.