Five Things To Do Before Applying For A Mortgage
Applying for mortgage preapproval is one of the first big steps of buying a home. However, it should not be the first step. Before you march on down to your local bank and put in your mortgage application, here are five things you'll want to take care of.
1. Get the lowdown on your loans.
When deciding how much money you can afford to borrow, you and the bank will need to consider not only your income and monthly expenses but also how much money you already owe to various lenders. Sit down and make a list of all your debts, including credit card debt, student loan debt, car loans, and other personal loans. If you have a lot of small loans, you may want to start working toward paying some of them off before you apply for a mortgage. Not only will this raise your credit score, but it will lower your debt-to-income ratio, which will increase the amount of money banks are willing to lend you for a mortgage.
2. Gather your financial paperwork.
Different lenders ask for different information, and if you do not have the right paperwork handy when it comes time to apply for a mortgage, you'll be scrambling to get your application completed on time. Here is a list of paperwork you should collect in preparation for mortgage applications:
- Your past two, if not three, tax returns
- Bank statements from every savings and checking account
- Profit and loss statements from any business you own
- W-2s from your employer
- Pay stubs from the last three or four pay periods
3. Make a list of lenders.
Applying to just one bank is a mistake. Different banks weigh different aspects of your creditworthiness when deciding how much to lend you and at what rate. At a minimum, you want to apply to three different lenders when you are seeking a mortgage. So right now, it's time to do a little shopping around and see which lenders in your area you are most interested in working with.
Alternatively, you can find a good mortgage broker who works with multiple lenders. Give them your information, and they will send applications in at several banks and credit unions for you. If you do not know of a mortgage broker in your area, a local real estate agent should be able to point you in the right direction.
4. Decide how much you are willing to borrow.
What the bank will agree to lend you and what you are comfortable borrowing may be two different things. For instance, the bank may issue you a loan that has you paying back $1,400 a month, but you only feel comfortable with a mortgage payment of $1,000 because you have other things you want to save for. Before you even apply for a mortgage, decide what payment you are comfortable with. This makes it easier to resist the temptation to borrow more just because it is offered to you.
5. Check your credit score.
Finally, check your credit score through one of the big credit rating companies. If your score is above 700, it is considered good -- and you should have no trouble getting a mortgage. If your score is between 600 and 700, you may want to take some steps to improve it before applying. Make payments on time, and pay off some small loans. While many banks will issue mortgages to lenders with scores between 600 and 700, raising your score above 700 will get you a better rate.
Once you've completed the tasks above, it's time to send in those applications! Happy house hunting!
Share