As you would position yourself for a job, a big game, or even a date, you can also position yourself to get a home loan. But did you know that you can benefit from a checklist to get ready to apply for a mortgage? Â.
We’ll go through the steps that both first-time and repeat home buyers will need to take before submitting an application for a mortgage.
Getting a mortgage is a significant financial step, and preparation is key to a smooth and successful process. Here’s a comprehensive guide on what you should do a month before applying for a mortgage:
1. Check Your Credit Score and Report
Your credit score is a crucial factor in determining your mortgage interest rate and loan approval Aim to check your credit score from all three major credit bureaus (Equifax, Experian, and TransUnion) at least a month before applying. This allows you to identify and address any errors or negative items that could impact your score.
Pro Tip: You can access your credit reports for free once a year from each bureau through AnnualCreditReport.com.
2. Calculate Your Debt-to-Income Ratio (DTI)
Your DTI is the percentage of your gross monthly income that goes towards debt payments Lenders use this ratio to assess your ability to handle additional debt, like a mortgage A lower DTI is generally more favorable for loan approval.
How to Calculate DTI:
DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100Example:
- Total Monthly Debt Payments: $1,500
- Gross Monthly Income: $5,000
- DTI = (1,500 / 5,000) x 100 = 30%
Ideal DTI:
- Conventional loans: 43% or lower
- FHA loans: 50% or lower
3. Estimate Your Ideal House Payment
It’s important to figure out how much you can comfortably afford to pay each month for your mortgage before you begin house hunting. This entails accounting for potential private mortgage insurance (PMI), property taxes, homeowners insurance, and principal and interest in addition to other costs.
Pro Tip: Use a mortgage calculator to estimate your monthly payments based on different loan amounts, interest rates, and down payment scenarios.
4. Determine Your Down Payment
The amount of your down payment will significantly impact your mortgage terms, including your interest rate and loan amount. Aim to save as much as possible for your down payment, as a larger down payment can lead to a lower interest rate and reduce the amount of money you’ll need to borrow.
Minimum Down Payment Requirements:
- Conventional loans: 3%
- FHA loans: 3.5%
- VA loans: 0%
- USDA loans: 0%
5. Gather Your Paperwork
The mortgage application process requires a significant amount of paperwork. To expedite the process, start gathering the necessary documents well in advance. This includes:
- Proof of income: Pay stubs, tax returns, W-2s
- Proof of assets: Bank statements, investment statements
- Proof of employment: Job offer letter, recent pay stubs
- Debt statements: Credit card statements, loan statements
- Government-issued ID: Driver’s license, passport
Additional Tips:
- Pre-approval: Consider getting pre-approved for a mortgage before you start house hunting. This gives you an idea of how much you can borrow and makes you a more attractive buyer to sellers.
- Shop around: Compare rates and terms from multiple lenders to find the best mortgage deal for your situation.
- Ask questions: Don’t hesitate to ask your lender any questions you may have about the mortgage process.
By following these steps and being proactive in your preparation, you can increase your chances of securing a favorable mortgage and make the homebuying process a smoother and less stressful experience.
What do mortgage lenders look for?
Lenders consider income, credit score, and debt-to-income ratio when preapproving borrowers. These factors can help them evaluate your credit, loan payment history, the amount of available credit you use, prior bankruptcies, and more. They want to see all the details of your financial status and, in the end, know how well you’ll be able to pay your mortgage.
See What You Qualify For
While getting ready to apply for a mortgage, there are a few things you shouldn’t do in addition to those you should. Â.
Home Mortgages 101 (For First Time Home Buyers)
FAQ
How many months of income do you need for a mortgage?
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Loan Type
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Job History Requirement
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Conventional loan
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Two years of related history. Need to be at current job for six months if applicant has employment gaps
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FHA loan
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Two years of related history. Need to be at current job for six months if applicant has employment gaps
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What is the monthly mortgage rule?
How much should you make a month for a mortgage?
Should you get a mortgage before buying a home?
You probably already know that a mortgage is a type of loan that you use to buy a home. It’s a good idea to learn as much as you can about getting a mortgage before you start shopping for a home. The best way to avoid wasting time is to know the players and the process. That means working with a lender to get the best possible loan.
When should I get a mortgage pre-approval?
The general guideline is to get a mortgage pre-approval at least 90 days before you plan to buy to give you enough time to find a home and close on your loan. While you can wait to get pre-approved until you’ve found a home you’re ready to make an offer on, a pre-approval can help you during your home search — some agents even prefer it.
How long does it take to get a mortgage?
Now that you’ve researched lenders, applied for preapproval and found a home that you’d like to buy, it’s time to actually apply for the mortgage. All in all, the entire process from application to closing could take anywhere from two weeks to two months. 1. Fill out a mortgage application
How do I get a mortgage loan if I’m a first-time home buyer?
The mortgage loan process can seem daunting, especially if you’re a first-time home buyer. But you don’t have to go it alone. Your real estate agent and mortgage loan officer will be your guides. Verify your home buying eligibility. Start here