There are a few things that you can do to make applying for a mortgage go more smoothly and give yourself a better chance of success. By preparing to apply for a mortgage correctly, you can receive the best interest rate that you qualify for and save money on your mortgage.
The key is that you should start working early when you decide that you want to apply for a mortgage. Here are a few ways that you should do when preparing to apply for a mortgage.
Compare Mortgage Loans
The best way to get the best interest rate is to compare different mortgages with each other. Using a mortgage calculator, you can find out how much you can expect your monthly payments to be depending on the type of mortgage you select.
Once you know which type of mortgage you are applying for, do not make the mistake of taking the first mortgage offered to you. Consider getting quotes from at least three different mortgage companies or from a mortgage broker.
Check Your Credit
You should also check your credit report plenty of times before you apply for a mortgage. Start checking your credit report and credit scores for errors about six months or so before you apply for a mortgage. This will allow you to work in order to fix any errors that you find.
According to the Federal Reserve, up to 79% of all credit reports have some type of error in them. While some can be as benign as an incorrect mailing address or employment data, large errors in your payment file or new accounts can have serious repercussions on your credit score.
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Reduce Your Debt To Income
Another thing that you should do when preparing to apply for a mortgage is to reduce your debt-to-income ratio. Your mortgage underwriter will want to make sure that you can handle your future mortgage payments when compared with the other debt payments that you may have.
Mortgage lenders do not want your mortgage to consume more than 28% of your gross monthly income, and they will want your total debt obligations to be much more than 36% or more when you apply. Paying off some of your debt before applying for a mortgage can greatly help you in preparing to apply for a mortgage. That’s something you can discuss with a mortgage broker if you want further advice on what the best course of action might be.
Preparing to apply for a mortgage can help you to receive a great interest rate and help you save money on interest payments on your mortgage payments. The most important thing that you can do is to should start working as early as possible when you decide that you want to apply for a mortgage.
Good tips Hank. A lot of people just don’t follow this advice. They go into their regular bank and accept the first mortgage offer they get approved for. When I was looking around I talked to a mortgage broker and it was a huge help. He was able to compare rates from various lenders and ensured I got the best possible deal. I decided not to buy yet, but I feel more comfortable about it these days at least.
Don’t check you credit too much but do check it.
Great post Hank! Don’t forget to document any large deposits for the 12 months prior to applying for a mortgage.
Good points Hank. I wish you had written this a month ago. We’ve just been through the mortgage application process to purchase another house. It’s definitely more complicated balancing the ratios the second time around. With our approval in hand, we’re going house shopping over spring break, can’t wait.
What is the greatest way to improve your credit? Having a better credit score increases your chances? I plan on having more than 20% of the down payment by December and I’ve been living in my own apartment for about 6 months, does that help me at all? How else can I show my bank that I’m responsible and ready? Also I don’t have any debt, does that help or hurt me?
Katarina,
Congrats! It sounds like you’re well on your way to becoming a homeowner very soon. It looks like you’re doing all the right things to make a bank look favorably on your mortgage application. You have a down payment. You’ve been living on your own. Make sure that you keep a steady job with steady income. They’ll want to see proof of that as well. Don’t worry about not having debt. That’s a great thing. You aren’t burdened by other loan repayments. The bank will love that as well. The more responsibly you use debt, pay off your balance on time, etc. – You’ll have a good credit score that the bank will love when it’s time to pay off your mortgage.