Applying for a mortgage if you plan on financing a home purchase should be the first thing you do but even before you apply for a mortgage you should get your finances in order so that you’re well-prepared when you sit down with a lender. Here are three things you should do before applying for a mortgage.
#1. Check and understand your credit score and history.
This can be a scary move for a lot of people but just bite the bullet and do it. Nothing changes whether you know about it or not so contact one of the three major credit reporting agencies, either Experian, Trans Union, or Equifax, or you can go through one of the major companies like Nerdwallet or credit inquiry and get your credit history for free. These reports will tell you your credit score, all of the credit histories you’ve accumulated since you’ve started accumulating it, and this is a good time to check for any errors or items that you had no idea about. If there are errors that can be corrected do so immediately, try to increase your credit score to at least 720 or higher by paying off bills, paying down debt, and paying things on time.
Alternatively: What if you just want to pay cash?
#2. Gather documentation.
Being preapproved for a home loan is not the same as prequalification. Anyone can look up a mortgage calculator to determine how much their mortgage payment would be but that doesn’t necessarily mean a lender will loan you money based on that number. Lenders will take a look at your income, debts, assets, and liabilities to determine how much each month your income can afford with a housing payment. These payments should include taxes, homeowners insurance, and any mortgage insurance plus a little extra to go for any repairs or upkeep.
Lenders will need several pieces of information from you:
- The last two years of tax returns
- W-2s or 1099s for the past two years
- Bank statements for 4 to 6 months
- A copy of your driver’s license and Social Security card
- Information from current employers
- Information from current landlords if applicable
- Pay stubs for the past 30 days
- Profit and loss statement for self-employed individuals.
(If you are self-employed, you may be able to qualify for a bank statement loan, which calculates your eligibility based on bank accounts and bank statements rather than pay stubs, which can be difficult to acquire if you’re self-employed.)
#3. Shop around.
Just as you are shopping around for the perfect house, you can do that with a loan as well. Find a lender in your area either through your bank, credit union, online, or through a mortgage group and ask about rates, fees, and costs involved. Let them know that your shopping around so they offer you the best possible rate and deal. Mortgage loans can vary greatly from one lender to another. Using a mortgage officer may cost a little bit more upfront but they have access to hundreds of programs and loans offering you a better deal than maybe the one or two options that your bank provides. Weigh your options to determine what works better both now and in the long run.
If you’re ready to start looking at homes or you’d like some resources for reputable mortgage officers and loan providers throughout Mesa Arizona, give me a call. I’ve worked with several lenders in our area over the decades and have compiled a list of those I feel are trustworthy, competitive, and can really get you the best option for your needs and your budget.