The dream of owning a home is a common one with most Americans. Yet, in most cases, the biggest obstacle to achieving this is financial in nature. In other words, most people do not have the money to go and buy a home outright. Mortgage loans exist for this very reason. Obtaining a home loan is not difficult, generally speaking. There are some definite strategies that can help you be prepared when you apply for mortgage.
The best place to start your preparations for a mortgage is to determine what amount of money you can afford to spend each month. The best way to do this effectively is to use a budget to find out what is left over after all of the necessary household expenses. Take at least a month to track all of your daily expenses. Record each expense you have through the day in a notebook or PDA, including descriptions and the total amount you spend.
This process has two aims. First, you should have an idea about where the money is going. Second, will be able determine whether an expense is necessary or unnecessary, or whether it is a need or a want. You should be able to cut down or eliminate certain expenses as a result.
Of course, the goal is to concentrate your cuts on those you consider wants rather than needs. If you do eliminate these types of expenses, you will then have extra money that can be put in savings with the goal of making a down payment on a house. Most lending experts suggest that you make every effort to save enough to put down 20% of the total cost of the home. Keep this savings separate from you other savings amounts by opening a separate savings account. Put as much of the disposable income you freed up in this account to reach your goal quickly.
Another way you can be prepared for a mortgage loan is to cut back or stop using your credit cards entirely. The only exception is if you know that you will be able to use the card and pay off the balance every month. Now if you do have a balance on the card, the goal is to pay it off so you can take the money and move it to your mortgage savings account that you may have set up expressly for your down payment.
Once you've actually saved a decent amount for your mortgage down payment, the next step is to get a copy of your credit report. This is offered free of charge by major credit bureaus once a year. With it, you will see your credit standing and know whether your current score will allow you to qualify for a home loan. A credit report will also allow you to estimate what the probable interest rate will be on your loan. If the score is higher, you rate will be lower. Conversely, the lower your credit score, the higher interest rate you will have to pay.
The state of your credit history including any delinquent accounts will have an adverse impact on your chances of getting loan approval. The same is true of any collections or charge offs. This may require you to use some of your saving to deal with these problem areas.
Preparing your financial circumstances for a mortgage can be an ongoing process, and you should take plenty of time to as "mortgage-ready" as possible. In the meantime, you will have probably learned some valuable skills that will help you manage your finances better when you finally obtain a home.