Mortgage loans are lump sums of money you borrow against a property and pay back over time. You can obtain them from major banks, credit unions or mortgage brokers; it’s wise to compare offers from at least three lenders before making your decision as this could save thousands in interest payments over the life of the loan.
Step 1: Apply for a Mortgage
Lenders will ask you questions about your income, employment history, assets and other elements that could determine whether or not you qualify for a home loan. They’ll also pull your credit report to confirm that you have an established history of managing debt responsibly and making timely payments.
Once you fill out an application and provide documentation to prove your income, employment status and assets to a lender, such as bank statements for checking and savings accounts, retirement or brokerage accounts from the past 60 days, canceled rent checks and letters from creditors confirming you’re paying off existing debts on time.
Depending on your lender and the type of property you’re buying, the application process may take several weeks to complete. During this time, try not to incur new debt or make other financial changes that could alter your debt-to-income ratio.
Check Your Credit Score
Before applying for a mortgage, it is essential to review your credit. This includes reviewing scores with major bureaus like Equifax, Experian and TransUnion which you can check free once annually from each. If there are any mistakes or inaccuracies on the report, taking steps to rectify them prior to applying for the loan.
If your credit score is suffering, it might be wise to reach out to a credit repair company or attorney and discuss ways of improving it. Since improving your score can take several months, make sure that the plan you create is achievable and sustainable in order for success.
Additionally, review your finances and ensure that you have enough available capital to make mortgage payments. To do this, avoid adding too much new debt onto credit cards or personal lines of credit as this could reduce the amount of available funds in your bank account.
Consider Making a Down Payment when Possible
Making a down payment can be the best way to secure a lower mortgage rate and reduce monthly payments. You typically can put down as little as 5% of the purchase price, but make sure you have enough money for closing costs and other expenses.
Once preapproved for a mortgage, the lender will order an appraisal to verify your home’s value and do a title search to make sure no liens exist on it. They’ll also give you a Closing Disclosure that details all final loan details such as interest rates and closing costs.
