10 Things You Must Do Before Applying For Your Mortgage

Posted by Chris on July 03, 2014

Buying your first home is a big deal. It can be easy to get swept up in the excitement of striking out on your own, and the thrill of imagining yourself living in some of the homes that you view may leave you feeling downright giddy. However, before you let the excitement go to your head, keep these 10 things in mind when applying for your mortgage.

applying for your mortgage

10 Things You Must Do Before Applying For A Mortgage

1. Choose Your Lender Wisely

Not too long ago, your only option for a home loan was your bank or credit union. Today, that’s completely changed. Thanks to the digital advances that have made their way into banking, you can now apply for a mortgage from the comfort of home. The only downside to this is you can easily become overwhelmed by the sheer number of lenders online, each making louder, better promises than the next.

How do you know who to trust? Read the small print, don’t be afraid to ask questions, and compare fees among the lenders. If the mortgage company isn't completely transparent, avoid using it.

2. Go Online

Direct online lenders can often provide better rates than banks because their overhead is much lower. Just be aware of any hidden costs, especially closing costs. If the thought of never speaking with a service representative bothers you, remember that most online lenders have support lines you can call at your convenience and get all your questions answered.

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3. Be Prepared

Once you've found a lender, be ready to apply for a loan. This means having access to commonly requested items such as a recent pay stubs, a couple of years’ worth of W2s, and at least two years’ worth of bank statements.

4. Consider Applying for a Pre-approval Loan

This is an important first step for many home buyers, and it can give you peace of mind while you look at homes. Once you know you are approved, real estate agents are much happier to open their doors to you.

5. Be Realistic

It’s okay to dream big, but don’t attempt to bite off more than you can chew. Know how much house you can comfortably afford before you start looking. Always consider that your income could go up or down, so you never want to have a larger payment than you can safely afford.

6. Know Your Credit Rating

Simply put, if you know what lenders think of your credit and ability to repay debts, you’ll know what type of interest rates to expect. It’s hard to compare interest rates without at least having a general idea of your credit rating, since those with higher credit scores can be offered much lower rates. Your lender is going to check your score, so you may as well know it before he/she does.

7. Don’t Apply for a Credit Card

Don’t apply for a card, or any other new credit, right before you apply for your mortgage. It will have a negative impact on your credit score and could cost you your pre-approval.

8. Do Fix Your Credit

If you have discrepancies on your credit report or find that you have a lower score than you’d like, put off applying for a mortgage until you've done whatever you need to fix it.

9. Do Shop Around

Even though you shouldn't apply for credit just before applying for a home loan, you can still have your credit scores pulled by several lenders without being penalized. Typically, more than one or two of these "hard" pulls within a short period of time (say, two weeks) is acceptable. If you have several done over several weeks, it could have a negative effect on your credit score and potentially get you a higher interest rate.

10. Consider a Larger Down Payment

It can be tempting to opt for a smaller down payment to ease the strain on your wallet at closing, but you’ll have much more flexibility and potentially better interest rates if you can put down at least 20 percent at closing. Remember, the more you put down now, the less you’ll have to pay each month.

What else would you add to this list?

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Topics: Mortgage 101