When to start looking for a mortgage?

If you don’t own a home and are considering buying one in the near-future we recommend you start researching and learning about the process immediately. If you own a home and are considering buying a new home or refinancing your existing home you should review mortgage rates and lending providers periodically and/or as part of your financial check ins (with your partner or financial advisor). Regardless, purchasing a home or refinancing a mortgage has a huge impact on your financial future and obtaining the best mortgage can save money for years to come.  

In general, we recommend you start researching lenders and mortgage rates 3-6 months before actively house hunting or considering refinancing your existing mortgage. If you are purchasing a new home we recommend getting pre-approved for a mortgage 1-3 months before making an offer. Below are additional tips to aid in your research process:

Start Early

It’s a good idea to start researching and familiarizing yourself with the mortgage process well before you plan to buy a home. This can help you understand your options, evaluate different lenders, and prepare your finances.

Assess Your Financial Situation

Before you start looking for a mortgage, take the time to assess your financial situation. This includes reviewing your credit report, calculating your debt-to-income ratio, and determining how much you can afford to borrow and pay each month.

  • AnnualCreditReport.com: This is the only official website authorized by the federal government to provide free credit reports. You can request your reports online at AnnualCreditReport.com, by phone, or by mail. The website is easy to navigate, and you can select which bureau’s report you want or choose to receive all three reports at once. You are entitled to a free credit report from each of the three major credit bureaus once a year, as mandated by the Fair Credit Reporting Act (FCRA). These credit bureaus are Equifax, Experian, and TransUnion.
  • Personal Financial Statement: To determine your debt for income ratio you can start by creating a Personal Financial Statement (PFS). A PFS provides an overview of an individual’s financial position at a specific point in time and includes information about an individual’s assets, liabilities, and net worth. Download the Worthsheet PFS Template. Worthsheet is a personal financial statement template that is available in Google Sheet or Microsoft Excel.  

Pre-Approval

Consider getting pre-approved for a mortgage before you start house hunting. Pre-approval involves submitting a mortgage application to a lender, who will then review your financial information and provide a preliminary approval for a loan amount. This can help you understand how much you can afford to borrow and make your offer more competitive when you find a home you like.

Consult with Professionals

Consider consulting with a mortgage broker or financial advisor to discuss your options and get personalized advice based on your individual circumstances. In addition, before making a decision on a loan or savings plan, run the numbers! The best way to start is by trying out online personal financial calculators such as a simple mortgage calculator, retirement contribution (403b calculator, 401(k) calculator), net worth calculators, and bank rate calculators. An example of a mortgage calculator with an amortization schedule can be found here. 

How can you reduce your total loan costs?

There are a number of specific loan options and in addition to getting the best rate and lowest closing costs, there are two factors that have a large impact on your total loan costs. These factors can increase or decrease your total loan balance and/or total interest paid over the life of the loan.

Real Estate Market

Is the market competitive? If you’re planning to buy in a competitive market or during peak home-buying season, you may want to start the mortgage process earlier to give yourself plenty of time to secure financing. Even better, a pre-approval letter from a bank gives you a competitive edge by showing sellers you’re a serious and qualified buyer. Competitive markets can lead to buyers bidding above asking and/or paying cash or not requiring a financing contingency. If you are able to move fast you may avoid a bidding war. Conversely, in buyer friendly markets being pre approved and ready to close will help when negotiating an offer price.

Interest Rates

Are interest rates expected to rise or fall? If rates are predicted to climb, locking in a pre-approval with a favorable rate today could save you money in the long run. However, keep in mind that pre-approvals usually expire after 3-6 months, so factor in potential delays. Interest rates dramatically change mortgage costs and using a calculator to perform “what if” analysis of rates is highly recommended. 

Your financial situation

Do you need to improve your credit score or debt-to-income ratio? Addressing these factors beforehand can potentially qualify you for better loan terms. Are you saving for a down payment? Understanding your down payment goals helps determine how much mortgage you need and your monthly payment affordability. As importantly, you can monitor and improve your financial situation by updating your personal financial statement frequently and setting goals to lowering your debt, increasing down payment funds, and improving your credit score. 

If you are patient you may be able to find a buyer friendly real estate market, lower interest rate period, and improve your financial situation. That said, the only thing in your control is improving your financial situation. 

Personal Financial Statement

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