Things to Do Before Applying for a Mortgage

Thinking about taking the plunge and buying a home? You might be eager to fill out your application and get the process started. But applying for a mortgage isn’t like filling out a job application—it involves so much more.

The truth is, you could run into problems or delays if you apply for a mortgage prematurely.

For a smoother, easier transaction, here’s what you need to do before applying for a mortgage.

Check Your Credit

Never assume that your credit is good enough to get a mortgage loan.

Even if you pay your bills on time, an error might appear on your personal credit file. Some errors are minor and easily fixable, but others can unknowingly drive down your credit score and make it harder to get a mortgage.

Ideally, you should check your credit report and credit score each year, especially if you’re thinking about buying a home. Reviewing your own credit file is the only way to know where you stand credit-wise.

Pay Your Bills on Time

Payment history makes up 35% of your credit score. To avoid late payments, set up autopay with your creditors or set payment reminders so you don’t overlook due dates.

Don’t run and hide if you experience payment problems. Many responsible people hit a financial rough patch at some point. If this happens to you, notify your creditors immediately and set up an alternate payment arrangement.

Pay Off Credit Card Debt

Too much credit card debt increases your credit utilization ratio (the amount of revolving debt you’re currently using), which in turn drives down your credit score.

Also, too much debt can reduce purchasing power, lowering the mortgage amount for which you can qualify.

Come up with a plan to pay off your credit card balances, or at least pay down balances to where you owe less than 30% of the credit limit.

And since we’re on the subject of debt, avoid big purchases before applying for a mortgage. Getting a personal loan or financing a new car increases your debt load. This can potentially decrease how much you’re able to borrow for a home.

Demonstrate Stability of Income

Stability of income plays a big role in whether you’re able to qualify for a mortgage loan. Even if your current income is enough to afford a mortgage payment, lenders need to evaluate the likelihood of your income continuing for the foreseeable future.

As a general rule, you must be employed for 24 consecutive months before applying for a mortgage. During this time, your income must remain the same or increase.

Save Your Money

Buying a home is expensive. You’re not only responsible for a down payment, but also your closing costs.

Depending on your mortgage program, you’ll need a minimum of 3% to 5%. Closing costs vary by location, but according to Zillow, they average about 2% to 5% of the sale price.

Gather Supporting Documentation

Getting a mortgage also involves a lot of paperwork, so gather supporting documentation before submitting your home loan application.

Documents you’ll need to get a mortgage typically include copies of your tax returns for the previous two years, bank account statements from the previous two to three months, recent paycheck stubs, W-2s, and a year-to-date Profit and Loss statement, if you’re self-employed.

Bottom Line

Preparation is key when applying for a home loan. Knowing what to expect can make it easier to get approved, as well as limit surprises along the way.

A home purchase is a big investment. Let the experts at Blue Spot Home Loans guide you through the process.Call us at (800) 976-5608 or fill out the contact form today to get started.