When you are trying to get approved for a mortgage you can afford, it’s important to make yourself as appealing a borrower as you can to lenders. Getting approved can be the difference between getting the home you want and watching competitors beat you out while you move into the lesser property down the street. Follow the below tips before you apply for a mortgage so you can give yourself the best odds of getting approved.
1. Check Your Credit
Lenders use your credit score to decide how likely you are to repay them, thus making good credit crucial to getting a mortgage at a good rate. (If you don’t know where you stand, you can get a free credit report summary, which includes two scores, updated every 14 days, from Credit.com.) It’s important to pull your free annual credit reports before applying to get an idea of what you’re entering the game with. Make sure there are no mistakes and address any real issues before applying. Look for late payments, delinquent accounts, collections, account age, and total debt.
2. Get the Paperwork in Order
Like any major financial transaction, the mortgage application process is pretty extensive. The lender will want proof of things like your income, your savings and any debts you have. Getting your documents in order ahead of time can streamline and speed up your approval. This means gathering your prior year’s tax return or pay stubs, a profit and loss statement if you are self-employed, bank statements for the past few months, and any recent loan or credit card statements.
3. Decide on a Down Payment
Bringing a substantial amount of money to the process shows you are serious about buying a home and capable of saving money as well as paying interest — it’s important to stay within a realistic framework of what you can afford. There is an industry standard of putting 20% down on a new home, but you need to figure out an amount that works for you and talk to your lender about what they think you should have in cash. It’s a good idea to pump up your savings if you aren’t quite there yet and consider bumping the amount to 25% or even 30% if you already have 20% ready and will be taking on a large mortgage. You can use a down payment calculator to help see what a difference this decision will make. Plus, it’s good to keep this separate from your emergency fund.
4. Understand Lenders & Loans
It’s important to look closely at your lender options and the fine print on the mortgages you’re applying for. Buying a home can help you build your net wealth and qualify for tax deductions if you find the right mortgage for you. Check out how a fixed- or variable-rate mortgage will affect your fiscal health. Get a lender that will work with you to negotiate and lock in a rate. If it isn’t looking like the terms are not working in your favor, don’t despair. You can always take a little bit more time to improve your credit score and reach out again or shop around for a different lender.
The more you know and prepare before you start your mortgage applications, the less painful and intrusive the process will feel. These efforts will also put you in a better financial position to begin your journey finding — and getting — the home of your dreams.
More on Mortgages & Homebuying:
- Why You Should Check Your Credit Before Buying a Home
- How to Find & Choose a Mortgage Lender
- How to Get a Loan Fully Approved