Preparing to Apply for a Mortgage
Before you set out to get a mortgage, it's important to prepare as much as possible. Even before you begin contacting lenders or filling out applications, there are steps you can take to make the process easier, and to prepare yourself for the best possible outcomes! Let's look at a few ways you can get ready to begin the journey of securing a mortgage and buying a home! 1. Credit Score
Your credit score will affect the kind of rates you pay, the amount of your loan, your monthly payments, and most importantly, your ability to qualify in the first place! Getting your credit score in good shape starts with gathering information. Find out your current credit score, and assess all of your current debts. Once you have this information, make a plan for paying down these debts as quickly as possible. It's generally a good idea to start with your smallest debts first. Get these paid off, and your credit score will begin to improve. Get a credit report from a reputable company, and review it closely for any errors - which can also negatively affect your score. 2. Make a Checklist
Do your research! Talk to lenders or find mortgage companies that provide free information (or even consultations). As you gather info, create a checklist that includes all of the materials and documentation you'll need, as well as each step of the process - from application to closing - and the associated costs that go with them. This will help you prepare mentally as well! If you have a roadmap of what to expect, how long each step will take, and what you need to have in order to chip away at the goal of homeownership, it's less likely that you'll encounter surprises along the way. 3. Make a Realistic Budget
Review your finances, your yearly earnings, and your existing expenses. What are you currently paying per month for housing? You may be tempted to shoot for the largest possible loan, or the nicest possible house - but be realistic here! Make sure you can afford what you're looking at, and carefully consider what your financial future will look like. You can work with a lender or broker to help determine what your overall home-buying budget truly is, but you can prepare by taking a good, top-down look at your finances and making ballpark estimates about what you want to spend on a home. 4. Save Up
The bigger your down payment, the better off you'll be in the long run - it's that simple. Not only will you be reducing the overall amount of your loan, you'll also be in better standing in terms of fees, additional costs, interest rates, and so on. This is a bit of a mixed message, since paying down your debts is also an important part of preparing to apply for a mortgage. So, make a plan for how to attack these problems that works for you. Maybe that means spending a year aggressively paying down debts, or tightening up your overall budget to squirrel away savings while also making payments on credit cards or vehicles.
You may even want to take steps to boost your income or cash in investments. However you can, save up for a sizable down payment! 5. Documentation Get all of your financial documentation in order, whether that's W2, bank statements, tax returns, and so on. Instead of waiting until you start applying to gather your documents, get a head start but organizing your financial history right away! Different types of home loans (and different lenders) will require different documentation, but even if you don't know what kind of mortgage fits you best, the more organized you can be, the better. Taking these steps as soon as possible, well before you start viewing homes or contacting lenders, will help you get in good standing for approval - and ultimately, buying a house you love. Prepare yourself for the mortgage application process as thoroughly as possible. You'll be glad you did!