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What you need to do before applying for a mortgage (including how to improve your credit score)

“Always pick your yard based on your Summer lifetstyle.”

~ KARL

September 12, 2019 - Karl Yeh

Before applying for a mortgage, what do you need to prepare? How do you get your finances in order? In this episode, we discuss how to prepare for a mortgage including how to understand your budget, ways to improve your credit and how the mortgage approval process works.

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What we discussed:

Karl Yeh:

Hi everyone. I'm Karl. Welcome to another Homebuyer's School video, a channel where you get the latest strategy, tactics and tips from homebuying experts. And remember, if this is your first time on this channel and you want to get the latest strategies from the experts, hit the subscription button below. Hit the little notification bell so you don't miss anything. [00:00:30]

So today, I'm joined by Mujtaba Syed, Mortgage Specialist with the Bank of Montreal. And the question we're going to answer is

How do you prepare for mortgage?

So you're ready to buy that house and you need to prep to make sure you get that approval. So what are the things you need to prepare for?

Mujtaba Syed:                  

So first and foremost, definitely get out there, get your pre-approval done before you even start looking for a property.

Uncover any situation that could be hidden. Address those situations, fix those situations. And then [00:01:00] you'll go through a more streamlined, more easier process when you actually find your home.

Karl Yeh:                             

Before you actually get that pre-referral, what should you be preparing for?

Mujtaba Syed:                  

What you should be preparing for is looking at first and foremost, what is your monthly budget? What are you comfortable enough to pay on a monthly basis so you don't feel stressed or stretched to your limit?

Second, know exactly what kind of house you're looking for.

Are you looking for a condo or a duplex, a townhouse, a single family home?

You want to think about what kind of home fits your needs and your family's [00:01:30] needs.

And then I would also look into what kind of communities are going to fit your needs, right?

Do you need something close to a school, something to a lot of shopping districts or you need something closer to public transport or something that you might consider later on.

So think about this for the next three to four or five years that you plan on staying in that property, what you're going to need.

A lot of that stuff is going to help make this process a lot smoother, easier and quicker if you do the legwork up upfront.

How to finance your home

Karl Yeh:                             

And if you want [00:02:00], we actually have a great video on doing all that legwork that Mo was talking about and I'll leave it up here in the description below.

Let's say you did get your preapproval. Is there anything else you need to prepare for even after that?

Mujtaba Syed:                  

Take the advice of your lender. If he's telling you to focus on A, B, C and D, these are the things that you should focus on, definitely focus on those.

You might have some debt you want to pay off.

Don't leave that to the last minute. You might have some savings to do.

Start doing that right away, so whatever guidance that your lender specifically give to you, take that and start applying that right away so when you do find a home, [00:02:30] there's no hiccups.

You go right ahead and it makes it an easier process.

How to improve your credit

Karl Yeh:                             

Now, I know in previous videos we talked about credit score.

What are some things that you can do way in advance to maybe improve that, because that's part of the five Cs of credit that the bank or the lender takes a look at.

Mujtaba Syed:                  

The most important thing a lot of clients don't realize is that staying close to the limits on their credit cards and line of credit balances, so if you have some credit cards or are close to the limits, pay those down.

A bank will always look out to see what you are [00:03:00] allowed to utilize and how much you have utilized.

 If you're using 100% of what they've given you, they know there's some underlying issues there that could reflect very negatively on your approval.

Another thing we discussed in the past, not doing too many credit checks so you don't come across as a crate seeker. That's a very important part. A lot of these situations can actually affect your credit bureau negatively. There's one interesting thing a lot of clients don't think about and a lot of lenders miss this as well.

So sometimes with an Equifax Credit Bureau, you can have multiple files on a credit bureau. For example, [00:03:30] let's say you have an interesting name.

It's a little bit harder than the usual name. It's spelled differently and at sometime in the past, the lender has used a different spelling on it. Now there's another file that exists for you on the credit bureau.

I've had a client just one time that had five different separate files in a credit bureau with all different current scores. So when we were looking at it, we were very, very confused, but what we did it was kind of looked at it and said, "Listen, do you have these credits products?" Then she said, "I have this but I'm missing some."

And then we looked into it and we found that they were hiding in other [00:04:00] files, so we got her to call Equifax and combine all of these credit files into one and her score actually improved. It did take about three weeks, but from there, her credit was a lot better.

It didn't make sense to us.

Sometimes your credit score's low and we can't figure out what it is.

It could be the fact that there is two or three different files out there and some were reporting positively on some and some were reporting negatively on others.

So talk to your lender about that and then combine them. You might even have a couple of different files on your credit bureau.

You want to be able to combine them into one.

Karl Yeh [00:04:30]:                             

How  would you know if you have multiple credit files? Is it just by doing a credit score check?

Mujtaba Syed:                  

So Equifax is a great product.

You can sign up on a monthly basis, they'll send you a credit report out to you and take a look at it. If something shows up on there that doesn't make sense to you, for example, if there was a credit card showing open where you closed a long time ago, call them.

If you call them and speak to them over the phone, they can actually tell you how many credit files you actually have open and you can combine them.

Unfortunately, a lot of clients don't really do that. They'd only contact Equifax.

They don't really stay on top of Equifax from the get go until they [00:05:00] get to the bank.

So before you even start your preapproval, maybe look at your own credit bureau.

It doesn't count as an inquiry against you. It does cost some money.

You are allowed to have one free one every year like Equifax stands out to you by mail, but you can always go online anytime and look at your credit score and you can actually decide, "Hey listen, these are some things missing. Let me fix this first before I go in for my pre-approval."

Karl Yeh:                             

So I have a feeling a lot of people are going to watch this, are going to be jumping off and checking their credit score right now.

Mujtaba Syed:                  

And they should be. That is exactly what we want them to do.

And you're going [00:05:30] to come back to us with a lot of questions and we're going to answer all those questions for you guys because this is something that I feel like almost every lender has missed.

Most of the clients that come to me, they're coming to me with low credit scores. We can't figure out why and sometimes it just takes one phone call.

Karl Yeh:                             

And just to let you know, this video isn't sponsored by Equifax. So Mo, do you have anything else to add in terms of preparing for mortgage?

Mujtaba Syed:                  

What I would say is just getting on top of it, getting in front of it, because this is going to be the biggest investment of your life.

It will take some homework on your end. And it's something that it can be a very frustrating [00:06:00] process if you haven't done that.

It could actually delay you from being a homeowner towards a certain time period if you hadn't done it sooner. I would say do it sooner than later.

It's like anything in your life you want to work towards, it's going to take some effort on your part, put some effort into it, ask us questions, talk to the experts and getting into the perfect home. So when you do find that perfect home, it's easy for you.

Karl Yeh:                             

So if you want to know more about the entire mortgage approval process, we've got a great video series for you here, as well as a great video series on understanding [00:06:30] mortgage rates here, which you'll definitely need to know if you're planning to get approval on a mortgage in the next several months.

And don't forget to hit the subscribe button to keep learning from the experts and I'll catch you in our next video.

 

Your turn:

Let us know if you have additional mortgage questions or home buying questions that we can answer by submitting them in the comments section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from home buying experts. 

About Mujtaba Syed:

Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.

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