Planning On Getting A Mortgage in 2022, Take These Steps

January 26, 2021
Last updated:
January 18, 2022
In This Article

If you are planning on a home purchase this year, then there are several steps you need to take in order to secure a mortgage and be financially prepared for homeownership.

As we move into 2022, there are a lot of people who are thinking about getting a mortgage. Even though it is a great time to look for a home loan right now, it is also important for everyone to make sure they place themselves in the best position possible to be successful. It is important to take the following steps if you are planning on getting a mortgage in 2022.

Calculate Your Overall Budget Carefully

First, it is important to take a look at the budget carefully and find a mortgage that is affordable. Remember that the mortgage payment is not the only expense that comes with owning a home. It is also critical to think about real estate taxes and homeowners’ insurance, which is often included in the monthly payment that goes back to the lender. 

Then, do not overlook the importance of utilities. Some of the most common utilities include electricity, water, gas, cable, and internet. Before looking for a home loan, make sure to calculate the budget carefully. 

Check Your Credit Report And Maximize Your Credit Score

After roughing out your expected budget, you should make it a point to check out your credit score. If you have not checked your credit report in the past year, you definitely want to take a look now. 

Make sure that all information listed under your name is accurate and report any errors you find. Note, it can take several months to correct the mistakes on your credit report. So, the earlier you investigate, the more time you give yourself to fix the problem before you start applying for loans.

Typically, credit scores above 740 will put you in the best position to qualify for lower interest rates. So, if your credit needs a boost, then now is a good time to pay off any credit cards, debts, etc., in order to maximize your score. 

You should also tighten your spending in the months leading up to applying for a mortgage so that you have as much cash available as possible. This usually means avoiding big purchases that could also affect your debt-to-income ratio, making it harder for you to qualify for the loan.

Other than late payments, balances on revolving debt like credit cards is usually the biggest cause for a lower credit score. Ideally you want to maintain a balance as low as possible compared to the maximum credit limit on each individual card. 

Even if you pay off your balance every month it’s important to know that the credit card companies report your balance as of your statement date, not after you make your payment. To ensure your score is as high as possible consider either paying your balance off before your statement date or lower the amount you charge to your credit cards for a few months prior to applying for a loan. 

It is important not to make assumptions good or bad as to what your situation is. If you are unsure it’s always better to reach out to a reputable mortgage company that can help guide and advise you on the best course of action based on your specific situation.

Figure Out Your Down Payment

Likely, you already have some money saved if you are expecting to buy a home in the next couple of months. Nonetheless, with limited homes available and historically low mortgage rates, you might think you need a large down payment in order to be a competitive buyer. But the good news is that you don’t. Moreover, you don’t have to put down 20 percent either.

Many borrowers actually put down significantly less if they qualify for certain programs (VA and first-time homebuyers). In general, most people these days put down anywhere from 3 to 19 percent. 

A prime example of this is with FHA mortgages, which allows borrowers to put down as low as 3.5 percent. Of course, loans such as these will likely require mortgage insurance, which can add to your monthly costs. However, some loans, such as a VA loan, actually don’t require any down payment or private mortgage insurance.

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Secure Financing And Get Pre-Approved

Often, homebuyers go with the first offer they receive when it comes to mortgages instead of shopping around and comparing interest rates, fees, and more. So, do yourself a favor and do your research/due diligence. Taking a moment to look around will definitely pay off and allow you to find the right lender or mortgage company for your needs.

Once you have chosen a lender, you should request a pre-approval letter, which outlines how much you might be able to borrow in more detail. Unlike a pre-qualification letter, a pre-approval letter lets the seller know that lenders have vetted your finances in-depth and that you can qualify for a loan–giving you a competitive edge as a buyer.

Consider Extra Payments And An Emergency Fund

With your pre-approval letter in hand, you can start house hunting and hopefully make an offer on your future dream home. That said, when taking out a home loan or securing financing for your home purchase, it is important to keep in mind that the majority of the monthly payment is going to go towards interest in the beginning. 

Towards the end of the loan, the majority of the payment is going to go for the principal. Homeowners who are able to make extra monthly payments, however, will be able to attack the principal directly, allowing them to pay off their home loans faster and pay less interest over the life of the loan. Thus, if you are able to make extra payments, then you should.

Note, it is also beneficial to have extra funds available for other home-related expenses. For example, an emergency fund for unexpected home repairs or changes in your financial situation is a great way to ensure that you are ready for whatever life throws at you as a homeowner.

Don’t Forget To Deduct Mortgage Interest From Taxes

Finally, anyone who is looking for a way to reduce their tax liability should consider taking out a home loan. There are lots of tax breaks that are available to people who own a home; however, for many homeowners, the biggest deduction is going to come in the form of mortgage interest. 

This can significantly reduce the amount of money that homeowners have to pay in taxes. So, be sure to speak with the lender to learn more about the relationship between mortgage interest and tax deductions.

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Ready to Apply For a Home Loan in WA, OR, CO, or ID?

Are you curious about mortgages, or are you ready to apply for one to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.

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