Applying for a mortgage can be an exciting and stressful process, but taking steps to get ready may increase your chances of a loan approval.
Here are some steps to prepare to apply for a mortgage.
Check your credit score
Credit scores are utilized by lenders to assess your creditworthiness. You may be viewed as a riskier borrower if you have a lower credit score while a good credit score can help boost your chances of getting approved for a mortgage. Retrieve a copy of your credit report, look it over and resolve any errors on it. Take further action to improve your credit score if necessary, so when the time comes to apply for a mortgage, you may have increased your likelihood of a mortgage approval.
Have an idea of the type of mortgage you may want
Every borrower’s financial situation and financial goals are unique. Thankfully, there are many types of mortgages to meet those needs.
Some factors to consider include:
Choosing between a fixed-rate mortgage or an adjustable-rate mortgage (ARM)
Fixed-rate mortgages are mortgages where the interest rate is set for the life of the loan. Adjustable-rate mortgages, on the other hand, start with a fixed interest rate. After a specified period of time, as the name suggests, the rate adjusts periodically for the rest of the term.
The length of the mortgage repayment period
While the term for ARMs is typically 30 years, there are term options for fixed-rate mortgages. The most common is 30 years, but other terms like 15, 20 or 10 may be available.
The type of mortgage loan
The most common mortgage loan types are conventional loans and government-backed loans (FHA, VA, USDA).
Save money for a down payment and closing costs
Most loan options require a down payment, which at a minimum is 3 percent of the purchase price. A larger down payment now results in a lower mortgage payment over the mortgage term.
And don’t forget about closing costs. Closing costs are the fees and expenses required to finalize a mortgage and can run between about 2% and 6% of the loan amount.
Assess how much you can truly afford as a total monthly home payment
Mortgage payments are just a portion of the total cost of homeownership. Make sure to account for the mortgage principal, interest, property taxes, homeowner’s insurance, mortgage insurance (if any), utility expenses, homeowner’s association (HOA) dues, and home maintenance expenses among other things into your total monthly homeownership cost.
Work with a trusted lender
A mortgage is a financial commitment you will have for years to come, so finding a reputable lender that can not only guide you now but can offer you a loan that’s right for you is essential. Look for a lender that has experience working with first-time homebuyers and that can answer any questions you may have. Get referrals from family and friends and talk to multiple lenders to understand the loan options they can provide you, at what rate, and at what cost in terms of fees.
Assemble your loan paperwork
You’ll need to provide documentation of your income, assets and debts when applying for a mortgage. Lenders will likely request pay stubs, bank statements, tax returns and other financial documents to proceed in the process.
Get preapproved
A preapproval indicates that a lender is ready to offer you a specific mortgage amount, subject to further verification of details. To determine the maximum amount they can lend you, the lender will assess your credit score, income, assets and debts during the preapproval process.
Go home shopping
Now that you know the mortgage amount you are approved for (while keeping in mind how much you can afford), you can go home shopping with focus.
It would give us great pleasure to work with you. Reach out today and let’s discuss the loan options available to you and get you preapproved for your home purchase.