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5 Things To Do Before Applying For A Mortgage

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5 Things To Do Before Applying For A Mortgage

The following originally appeared on Unison

There’s nothing worse than applying for a mortgage and getting rejected, especially if it means you will lose out on the home of your dreams.

So what can you do to avoid getting turned down by your mortgage lender? It turns out there are a few important things you should do before applying for a mortgage. Here’s a short list:

1. Check your credit report

You wouldn’t fly an airplane without a flight plan, right? So don’t apply for your mortgage without seeing your own credit information. Get your credit report and review it thoroughly so you know exactly what’s on it. This will allow you to identify any errors and fix them ahead of time.

To get your credit report, go to AnnualCreditReport.com. This government-backed website allows you to download your credit report from the 3 major credit bureaus: Equifax, Experian, and TransUnion, once per year.

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When you get your report, scan through it, make sure you understand it, and make sure all the information is accurate. If you see accounts listed with late payments, try to get current on payments if you can. If you see any errors on your report, you will need to take steps to repair your credit. (Read more about repairing your credit here)

2. Check your credit score

Now it’s time to look at your credit score, which is based upon the information in your credit report. To see your credit score, you will need to sign up for a free website like CreditKarma.com, NerdWallet.com, or CreditSesame.com, that will show you your score.

If your score is above 720, you should have no problem getting approved for a mortgage. If your score is between 620 to 720, you should still be able to qualify for a mortgage but you may have to pay a higher interest rate. If your score is below 620, it may be difficult to get approved for a mortgage. (Read more about what credit score you need to buy a home) However, you can always take the next step and improve your score.

3. Improve your credit score

There are plenty of ways to improve your credit score if you make an effort. It just requires understanding how credit scoring works and what you can do about it. The most important thing you can do is work with your creditors to resolve any accounts that are past due. Please note that if your debt has already been charged off by a lender (i.e. sold to a debt collector), you need to exercise caution in how you proceed. In some cases, you can negotiate a “pay for delete” agreement with your lender, where they erase the delinquency from your record.

The second most important thing you can do is pay down your balances on any credit cards you currently have. This helps your credit score because it lowers your outstanding debt and increases the amount of credit available to you. (Read more about improving your credit to buy a home)

4. Calculate your DTI ratio

Aside from your credit score, the other big number that affects your mortgage application is your DTI, or Debt-to-Income ratio. This measures how much your monthly debt payments are in relation to how much you earn.

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For example, if you make debt payments of $1,000 per month and your income is $4,000 per month, then your DTI would be 25 percent. In most cases, a lender wants to see a DTI of less than 43 percent before they will approve your mortgage. If your DTI is currently above that threshold, you should look for ways to lower it. (Read more about your DTI or Debt-to-Income ratio here)

5. Gather your documents

One thing that always throws a wrench in the mortgage process is when you can’t find a certain document required by your lender. That’s why it’s a good idea to start organizing all your paperwork before you apply for the mortgage. Make sure you have all required documentation, including bank account statements, existing loan statements, paystubs, tax documents, forms of ID, and your W-2.

If you can’t find any of these documents, reach out to the appropriate company or government entity to replace the documents as quickly as possible. Being prepared with all your documents will give you confidence that things will go smoothly when you apply for the mortgage loan.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: unisonEducation Personal Finance General Real Estate

 

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