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Applying for a mortgage is a serious financial decision that can effect your life for years to come. Whether you are purchasing your first home, refinancing your existing mortgage, or investing in real estate, there are numerous things to consider before you apply for a mortgage loan.
In this post, we will discuss what you should do to prepare for a mortgage application and enhance your chances of getting accepted for the loan you need.
REVIEW YOUR CREDIT SCORE & REPORT
Your credit score is one of the most essential elements that lenders check when analysing your mortgage application. It is a numerical representation of your creditworthiness and reflects your history of paying bills on time, the amount of debt you have, and other criteria. A high credit score might help you qualify for a better interest rate, while a low credit score can make it more difficult to get approved for a loan.
To check your credit score, you can request a free credit report from one of the three major credit reporting agencies (Experian, TransUnion, and Equifax). Once you've obtained your reports, review your credit report carefully to make sure that all the information is accurate and up-to-date. If you uncover any errors or inaccuracies, dispute them with the credit reporting agency and have them fixed.
Not sure how to do this, no problem, our team can help you navigate the process. If you need help on improving your credit so you may qualify for a home loan, don't hesitate to contact us today.
ACCOUNT FOR YOUR DOWN PAYMENT
A down payment is the initial sum of money paid when purchasing a home. The greater the down payment, the smaller the monthly mortgage payment and the less you will need to borrow from the lender. Most conventional mortgage loans need a down payment of at least 20% of the purchase price, although there are choices for smaller down payments, such as government-backed loans (FHA, VA, USDA). Keep in mind, while a smaller downpayment sounds good, it can mean having to PMI or private mortgage insurance for the life of the loan.
When speaking to a lender, they will need to account for your down payment money. Because down payment funds cannot be borrowed, or gifted from just anyone, it's common for a lender to request 2 months bank statements so they can verify the down payment money has been in your account for at least 60 days. Lender will call this seasoned money. Money that has NOT been in your account for this long, can be a sign of gifting or borrowing and will require additional documentation.
THE PRE-APPROVAL
Getting pre-approved for a mortgage loan is a vital step in the home buying process. Pre-approval indicates that a lender has
reviewed your financial information and determined how much they are willing to lend you. This provides you a clear understanding of how much you can afford to spend on a home and can help you avoid overspending. Most Realtors will require you to have a pre-qualification or pre-approval prior to them showing you potential homes.
To obtain pre-approval, you must provide the lender with verifiable details regarding your income, expenses, debts, and assets. This information will be used by the lender to calculate your
debt-to-income ratio and ensure that you can afford the mortgage payments. During this process, be ready to provide 2 years tax returns, the last few pay stubs (W2 employees), your bank statements to account for your down payment and closing cost, and authorization to review your credit. This review of your credit will confirm your current assets and liabilities.
Working with a mortgage broker, who can help you find the best mortgage for your situation may be preferable then applying to a single lender or approaching many lender individually. Mortgage brokers have access to numerous loan programs and may assist you in comparing offers from several lenders at one time. If you're interested in a pre-qualification, don't hesitate to call our team today!
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