How To Prep Your Finances For A Mortgage Loan Application

If you’re like many people, owning a home is part of your American dream. A house, whether it’s in the country or the suburbs, can mean security, permanence, and comfort.

Preparing yourself for a mortgage application involves several steps to increase your chances of approval and secure favorable terms. Here are some key actions to take:

1. Check your credit score. Knowing your score is a good place to start. Fortera members have instant access to their credit score and credit report within our online and mobile banking platforms. Click here to learn more.
2. Pay down debt. Lenders also look at your DTI, or debt-to-income ratio. A good credit score is not enough to get approved. You need to have a low debt-to-income ratio. Pay down your credit cards, get rid of debt, and don’t take any new debt on!
3. Go on a new credit freeze. The fastest way to send your score tumbling is to open new accounts or apply for other loans. While you might be eligible for it, opening a new account will affect your score in several ways - almost always lowering it temporarily. Getting that “easy credit” at the furniture store, may be the thing that prevents you from the dream of home ownership.
4. Save for a down payment. Lenders typically require a down payment, which is a percentage of the home's purchase price. Saving for a larger down payment can help you secure better loan terms and reduce the overall amount you need to borrow. It also can help you make a better offer on a home.
5. Assess your financial situation. Take a close look at your income, expenses, and debts to determine how much you can afford to borrow. Consider using online mortgage calculators to estimate monthly payments and ensure they align with your budget. You can also use online tools to determine how much mortgage you can afford.
6. Gather necessary documents. Mortgage applications require various documents, such as proof of income (pay stubs, tax returns), bank statements, and identification. Collect and organize these documents in advance to streamline the application process.
7. Research mortgage options. Familiarize yourself with different mortgage types and terms. Compare interest rates, loan terms, and fees from multiple lenders to find the most suitable option for your needs. It's advisable to consult with a mortgage professional who can provide guidance and help you navigate the process. Special programs exist for first-time home buyers and veterans. Many states and even local counties and cities offer their own additional programs. It may pay off to do a little research with the help of a local non-profit or government office. Fortera's mortgage department is available to answer any questions you may have.
8. Be prepared for the appraisal and underwriting process. Once you find a home and submit a mortgage application, the lender will likely require an appraisal to assess the property's value. They will also conduct underwriting to evaluate your application. Be prepared to provide any additional documents or information requested during this stage.

Article adapted from original in partnership with Credit Mountain.