Being approved for a mortgage can be complicated, but with the right preparation, you can simplify the process. It's all about knowing what's involved, what to expect, and taking action to correct any outstanding issues.
Here are the 6 steps to set yourself up for mortgage pre approval and a smooth journey towards homeownership:
1. Start Preparing Early
Don't wait until you're about to buy a home to begin preparing for your mortgage. The earlier you start, the more you'll know and be able to position yourself as a candidate for a loan. Even if you don't end up buying a home for a year or two, your mindset will be different thanks to the knowledge you'll gain from preparing, which will help you even several years after the fact.
2. Protect Your Credit
First, run a credit check to make sure that your credit is in order. If you find any issues, take care of them immediately. Start paying down your outstanding credit card balances-the less you owe in comparison to your available credit, the better off you'll be-and make sure that you make all of your payments on time.
It's not the end of the world if your credit is less than perfect. There are programs available for you. But banks want to know that you're responsible. They must see that you've been making timely payments on all of your bills to feel comfortable enough to lend you money.
3. Watch Your Bank Accounts
Banks and lenders want to make sure that you can afford the home you're buying. Although they will run your credit before lending you money, they will also look for signs to make sure you don't have loans that aren't showing up on your report. One of the methods of doing so is by checking your bank accounts for large deposits, which could indicate that someone just lent you money.
If you do have to deposit a large sum of money that's not part of your regular income, be prepared to explain it. For example, if you've lent someone $5,000 and they just paid you back, you can deposit it into your bank account, but keep a copy of the loan document-however unofficial it might be-so that you can show that it wasn't money that you borrowed.
4. Keep Your Documents Handy
Documentation could cause major delays in the loan process. You want to make sure that if your loan originator asks you for documents, you can produce them almost instantly.
Keep a soft or hard copy-or both-of the following at all times:
- Two years of tax returns and W2s
- Six months of bank statements
- One month of paystubs
Every bank, loan, and borrower are different. There's no telling what you'll need and when. The above may be overkill for some scenarios, but it's worthwhile to have more than less available so that if these documents are required, you can provide them immediately.
5. Start Saving
In all likelihood, you will have to make a down payment on your home. Figure out how much you're looking to spend on a house, and assume that you'll put down anywhere between 3% and 20% of the purchase price. The more you can afford toward a down payment, the better off you'll be. And, the earlier you start saving, the more you'll have in the bank when you're ready to buy.
6. Talk to a Pro
There's a lot that goes into a loan. Your situation may be simple-you might have perfect credit, an excellent work history, and a lot of money in the bank. But if anything is even slightly off, you will need a professional's help.
How will putting down less than 20% affect your payments?
If your credit is less than perfect, which programs are available to you?
Will you qualify for a loan if you had a lapse in employment?