Getting a mortgage is about more than having your offer accepted and signing on the dotted line. Doing the proper research and being prepared before approaching a financial institution is key to a streamlined loan application experience. Make your process smoother by considering these five steps before you apply for a loan:
1. Check your credit before starting the loan application process.
The lender will start with your credit report, which is your financial history, and so should you. They will use the reports to determine how creditworthy you are, so you need to make sure there are no errors that bar you from getting a loan. You can request a free credit report from the three national credit reporting bureaus—Experian, Equifax and TransUnion— to access these free credit reports once a year. Getting a report from all three agencies at the same time allows you to determine whether your credit information has mistakes so you can have them corrected. The bureaus have 30 to 45 days to investigate an issue and fix it. Some examples of errors: any accounts listed that aren’t yours; accounts incorrectly listed as being in collection; incorrect large balances or late payments reported.
2. Start saving money now.
Not only will you need cash for a down payment (usually 20 percent of your home’s price), but you’ll also need funds for the fees that go along with your loan: homeowner’s insurance, an appraisal, a home inspection, closing costs and escrow reserves. You may have to provide a year’s worth of homeowner’s insurance up front and/or show your lender that you have three to six months of your new mortgage
payment in reserve. And don’t forget your moving costs and utility setup fees.
3. Do not request a new credit card while you are applying for a mortgage loan.
When you apply for a new credit card, your credit score will dip temporarily due to the application credit check. This check counts as a hard inquiry on your account for about 12 months, which can be a red flag to lenders. It’s the same when closing an old account, which affects the amount of your available credit, another negative. In other words, don’t open up any lines of credit and don’t close any out. Just keep
making on-time payments and reducing any debt.
4. Find your lender early in the process, and get prequalified.
Find a mortgage lender early in the process so you can develop a relationship and get prequalified before you start house-shopping. Getting prequalified will give you an idea of how much you can spend on a new home and can shorten the mortgage application process. Prequalification also signals to a seller that you are serious while giving you some specifics (such as interest rates) to work with. Check the lender’s record: Do they close on time? Lenders who are late with the paperwork can cause your deal to fall through.
5. Know your assets and debts.
Your lender will have to verify all funds that you receive, so it’s a good idea to get together any documents that will verify proof of funds, such as gifts and trust accounts. Your lender will also need to know about any other debt you have, such as student loans, car loans, etc. Get an itemized list of your total fees.
You need to know just how much money to bring to the closing table, so ask about
fees. These fees will be for homeowner’s insurance, an appraisal, a home inspection,
closing costs and escrow reserves. A lender may also require you to pay property
taxes and insurance up front, and it all adds up.
Check All the Boxes
Once you’ve made these considerations and feel confident about your financial state, it’s time to make the jump! If you are ready to apply, it’s time to find the loan that’s right for you and your home.