Top 5 Tips for Applying for a Mortgage

When you decide to buy a home, you pass a major milestone in your life. Preparing to purchase a home is a joyous but often nerve-wracking time as you examine your financial situation. You need to find a home you love and start getting ready to apply for a mortgage. There are many things that you can do to position yourself better in terms of approval for a mortgage and your interest rate. These are the top five tips for applying for a mortgage.

Check Your Credit Report

Your credit report and credit score play a large role in your ability to qualify for a mortgage. The three credit reporting companies are Equifax, TransUnion, and Experian. You need to get a report from each agency as the information can differ. Unfortunately, errors on credit reports are not uncommon. If you spot a mistake, then you need to file a claim with each agency that shows the error. Make sure to check the report for accuracy in advance of applying for a mortgage. It can take up to three months for changes to occur in your credit report. You also might need to locate information that you paid a debt that still appears on your report as unpaid.

Commit to a Job

Job switching is not unusual in a market with plenty of career growth, but that can present as unstable to a mortgage lender. Lenders want to see multiple years with the same employer. If you do switch jobs, make sure it is for a pay raise. Lenders only care that you are at a low risk of default, not that you have found your passion. If you are self-employed, the rigor applied to your application will be more difficult than someone with an employer. To make things faster, have IRS returns for the past few years when you go to the bank.

Emergency Funds

Your application looks better to a mortgage lender when you have money saved to pay for at least the first two months of your mortgage payments. Some lenders even require it. Try to have even more than two months saved when you apply. Your cash supply shows that you have enough money in case of an emergency that interferes with your paycheck or you have to pay another debt, such as an emergency medical bill. When you apply, you need to show that you plan for these circumstances and can make your mortgage payment.

Shop Around

You need to find a mortgage lender that has terms that fit your needs. The bank where you keep your accounts may or may not be the best lender for you. The lenders that real estate agents recommend may have a particular relationship with the realtor, but the lender might not have the best terms. To know this, you need to shop around and compare. Look at mortgage rates, but keep in mind the difference between fixed and variable rates. Think about your financial outlook longterm. To get an idea of your options, go online and use a validated lender comparison service. You can submit several applications at once to look at your offers and judge your position.

Pay Your Debts

Your debt-to-income ratio is a big factor in your approval and your rate. Lowering your debt can give you a much better rate. You want to focus on reducing your recurring debt payments. Pay off credit card bills, car loans, and other installment loans. If you have debt with a third-party collection agency, you can often negotiate a deal to pay the debt in full at once and get the item removed from your credit report. This is a common practice called a pay for delete arrangement. Doing this improves your position even more. 

Applying for a mortgage is stressful, but approval and loan terms are within your control. By putting in more work up front, you can position your application in a more favorable way to lenders. Use these tips when you start thinking about applying for a mortgage.

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About the author: Wifred Murray

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