Preparing for Your Mortgage Journey: 5 Key Steps Before You Apply
Thinking about buying a home? A little preparation before applying for a mortgage can help you better understand your finances, organize the information you may need, and approach the process with greater confidence.
By Sandy Biondo | Consolidated Lenders Group
Buying a home is exciting, but preparing for a mortgage can sometimes feel like there are a lot of pieces to put together.
Where do you start? What documents might you need? How much should you save? And how do you know whether you're financially ready?
The good news is that you don't have to figure everything out at once.
With decades of mortgage and real estate financing experience, I've seen how helpful a little preparation can be. Here are five practical steps you can take before applying for a mortgage.
1. Review Your Credit
Your credit history and credit score are among the factors lenders may consider when evaluating a mortgage application and determining available loan terms.
Before applying, it's a good idea to review your credit reports and make sure the information being reported is accurate.
You can obtain credit reports from the three major credit reporting companies:
Equifax • Experian • TransUnion
Look for information you don't recognize, accounts that don't belong to you, or other possible inaccuracies.
If you believe information on your credit report is incorrect, you have the right to dispute it with the credit reporting company and the company that provided the information.
Reviewing your credit ahead of time also gives you an opportunity to better understand your overall credit picture before beginning the mortgage process.
One important note: Be cautious about making significant changes to your credit or opening and closing accounts simply because you're preparing for a mortgage. If you're unsure how a financial decision could affect your application, it's worth discussing it with a mortgage professional first.
2. Start Gathering Your Financial Information
Mortgage applications generally require documentation that helps verify things such as your income, assets, employment and financial obligations.
The exact documents needed will depend on your individual circumstances and the type of financing you're considering.
Commonly requested information may include:
Recent pay stubs or other documentation of income
W-2s or other income records
Tax returns when applicable
Recent bank statements
Documentation for certain investment or other asset accounts
Employment information
Information about existing financial obligations
Self-employed borrowers and people with other types of income may be asked for different or additional documentation.
You don't necessarily need to have every document ready before your first conversation with Sandy.
The goal is simply to start getting organized.
3. Take a Look at Your Existing Debts
Another important part of your financial picture is the debt you already have.
Lenders commonly consider a borrower's debt-to-income ratio, or DTI, which compares certain monthly debt obligations with gross monthly income.
These obligations may include things such as:
Car payments • Student loans • Credit-card minimum payments • Other qualifying monthly debts • Proposed housing payment
Different loan programs and circumstances can have different qualification requirements, so there isn't one DTI number that's right for every borrower.
Before applying, simply take inventory of what you owe and your required monthly payments.
If you're considering paying off or significantly reducing a debt before applying for a mortgage, you may want to discuss your situation with a mortgage professional before deciding how to use your available cash.
Sometimes keeping funds available for your home purchase can also be important.
4. Prepare for More Than the Down Payment
When people start saving for a home, the down payment usually gets most of the attention.
But it isn't the only expense to consider.
Depending on the transaction and financing, you may also encounter:
Closing costs
Prepaid property taxes or homeowners insurance
Initial escrow funding, when applicable
Inspections and other transaction-related expenses
Moving expenses
Repairs, furnishings or improvements after purchasing the home
And remember: a 20% down payment isn't required for every mortgage.
Down-payment requirements vary depending on the loan program, property and borrower circumstances.
Rather than choosing an arbitrary savings goal, it can be helpful to learn what financing options may be available and approximately how much cash you may need for the entire transaction.
Buying a home isn't only about having enough money to close. It's also worth thinking about how much you'd like to have left in savings afterward.
5. Define What “Affordable” Means to You
Before you begin seriously shopping for homes, think about what you actually want your homeownership experience to look like.
Consider questions such as:
What monthly housing payment feels comfortable?
How much money do I want to keep in savings?
What type of property am I considering?
Which areas would work for my household?
How long might I stay in the home?
What other financial priorities do I have?
Remember that the amount you may qualify to borrow and the amount you personally feel comfortable spending aren't necessarily the same thing.
Your mortgage is only one part of the cost of owning a home.
Property taxes, homeowners insurance, HOA fees when applicable, utilities, maintenance and repairs can all affect your household budget.
Thinking about those expenses before you fall in love with a particular property can help you approach your search with a clearer picture of what feels sustainable for you.
You Don't Have to Be “Mortgage Ready” Before Asking Questions
This is something I want prospective homebuyers to understand:
You don't have to wait until you think everything is perfect before having a mortgage conversation.
Maybe you're planning to purchase soon.
Maybe you're six months or a year away.
Or maybe you simply want to know whether homeownership could be realistic for you.
An early conversation can help you better understand where you are today and what your next steps might be.
You may discover that you're more prepared than you thought—or you may identify a few areas you'd like to work on before moving forward.
Either way, having more information can help you make better-informed decisions.
Your Personal Guide Through the Process
With decades of mortgage and real estate financing experience, I don't believe in one-size-fits-all answers.
Your finances, priorities and homeownership goals are personal.
My approach is to listen to what you're trying to accomplish, help you understand available financing options, answer your questions, and provide clear guidance throughout the process.
You don't need to know all the answers before we talk. That's what the conversation is for.
Thinking About Buying a Home?
Whether you're ready to apply or you're simply trying to figure out what you should do first, Sandy is here to help.
Start with a conversation about where you are today and where you'd like to go.
Disclaimer
This information is provided for general educational and informational purposes only and is not intended as financial, legal, tax, or investment advice. Every borrower's situation is different. Loan programs, rates, terms, eligibility requirements, property requirements, and costs are subject to change and may vary based on individual circumstances. All loans are subject to applicable underwriting and approval requirements. Borrowing against home equity creates debt secured by your property and may increase your total borrowing costs. Refinancing may increase the total finance charge over the life of the loan. This information is not a commitment to lend or a guarantee of loan approval. Please contact Sandy Biondo at Consolidated Lenders Group, Inc. to discuss your individual financing needs.
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