Two Years, One Year, Six Months: Your Get-Ready For a Mortgage Timeline
Preparing for a mortgage is like planning for a big party. The more you do ahead of time, the less hectic things will be when the day finally arrives.
Getting a mortgage is a rigorous process that puts your financial life under a microscope. It isn’t just as easy as pulling your credit score. There are specific things you can do to prepare, at least two years in advance, to be ready for the day you find that special home.
What To Do Two Years Out
Two years before you apply for a mortgage get your credit in order. Especially if you have less than perfect credit, now is the time to rebuild yourself into a more attractive credit customer.
- Don’t Quit Your Day Job: Changing jobs is fine. Changing careers is another issue. Mary Anne Daly, Senior Mortgage Advisor at Sindeo, says that “the magic number is two years.” Why does a lender care if you’ve changed careers? “From a lender’s perspective, they want to make sure that the new career works out.”
- Clean Up Your Credit Report: Pull your full credit report. Look for anything that doesn’t seem to belong. Then investigate those trouble spots with an eye toward getting them removed. Daly notes that very old debts, those close to seven years, might fall off your credit report without you doing anything. She also says a lender can provide advice and guidance regarding what on your credit report might give them pause.
- Pay Down Outstanding Debt: When it comes to your credit score, the second most important factor is the amount of debt you’re actively using. It’s also the factor you have the most control over. Old missed payments can’t be undone. Debt you’ve gone into can. So what’s the number one factor? Timely payments. “The best thing you can do is pay your bills on time,” says Daly. “Do that for two years and then you’re in good shape.”
- Paying Off Old Accounts: There might be a negligible impact on your credit score for settling older debts in collections. From the perspective of a lender, however, it can make a big difference. When you settle a debt, you’re basically saying that you took on more debt than you could handle. That’s a big deal when potential lenders are taking a close look at your credit history. Daly recommends working on a payment plan with creditors.
- Start Saving: The more you can save toward a down payment the better, though Daly says many people are surprised to hear that the old guideline of “20 percent” is largely a myth. Still, having a sizable down payment can help you to avoid taking on mortgage insurance, an extra payment often associated with lower down payments.
- Keep Your Tax Returns: Other paperwork doesn’t have to have much of a legacy, but Daly says you should have at least two years of tax returns.
What To Do A Year Out
With a year to go before applying for a mortgage, you may be anxious. The good news is that you still have time to put some spit and polish on your future application.
- Regularly Monitor Your Credit: You went through your existing credit a year ago. Hopefully you’ve been monitoring it in the meantime. If not, there are a number of free online services offering you a peek at your credit report. Check in once a month to make sure there are no irregularities.
- Rework Your Budget: Remember, the more down payment you have the better. So with a year to go, why not look for savings in your budget. Cancel subscription services you’re no longer using, talk to your insurance providers about getting your rates lowered and throw the bulk of your tax refund into that down payment account.
What To Do Six Months Out
Now that you’re applying in six months, you’re getting really anxious to just start the process. Not yet. Now is the time to do a bit of fine tuning and get your ducks in a row before you apply.
- Get Rid of Authorized User Accounts: Daly says that in the past, many people got added as authorized users on their parents credit cards to bump their credit up. Now, lenders are wise to that trick — and wary of people who are authorized users on credit cards. Sometimes lenders will go as far as to have you remove yourself from the credit card simply to run your credit as if you didn’t have it.
- Check SindeoOne: SindeoOne’s rate quote can give you an idea of rates and what to expect for payment and costs. It’s quick, easy to fill out and can get you in the mindset of the home buying process.
- Talk to a Mortgage Advisor: Different lenders have different criteria for mortgages. A mortgage advisor like Daly can give a fresh perspective on your finances. For example, many people don’t know that loans from family members, deposited in cash, can be a red flag. “Lenders don’t like people getting loans they don’t know about,” she says.
Applying for a mortgage doesn’t happen overnight, but you can make the mortgage application process a whole lot smoother — and potentially gain access to better loan services — when you prepare well in advance of application time. Now, that’s a reason for a party.