Understanding the Mortgage Application Process
What Lenders Look for in a Mortgage Application
- Lenders consider credit score, income, employment history, and debt-to-income ratio when evaluating a mortgage application.
- A good credit score can significantly impact the interest rate offered and the likelihood of approval.
- Lenders also consider the loan-to-value ratio (LVR) and the purpose of the loan.
Preparing Your Finances
Check Your Credit
- Check your credit report for errors and dispute any inaccuracies.
- Know your credit score in advance to match the best mortgage loan for your situation.
- Fix any credit issues before applying for a mortgage.
Improve Your Credit Score
- Paying bills on time and in full can prime your credit before applying for a mortgage.
- A high credit score can significantly help your chances of getting a mortgage.
- A low credit score can make it harder to get a mortgage.
Save for a Down Payment and Closing Costs
- Aim for as much as you can comfortably afford for a down payment.
- A bigger down payment lets you get a smaller mortgage, giving you more affordable monthly house payments.
- Lenders also charge less in mortgage rates and fees to borrowers who put more money down.
Avoiding Common Mistakes
Don’t Open or Close Any Credit Cards
- Avoid applying for new credit cards, as it can lower your credit score.
- Avoid closing old credit cards, as it can impact your credit utilization rate.
- Keep your credit cards open and use them responsibly.
Don’t Make Any Large Purchases on Credit
- Avoid making large purchases on credit, as it can impact your debt-to-income ratio.
- Consider saving for large purchases instead of financing them.
- Make smart financial decisions to avoid debt.
Avoid Large Deposits or Withdrawals
- Avoid making large deposits or withdrawals that may raise questions about your income.
- Keep your bank statements consistent and easy to explain.
- Be prepared to explain any large deposits or withdrawals.
Don’t Change Jobs
- Avoid changing jobs during the mortgage application process.
- Consider staying in the same job for at least two years before applying for a mortgage.
- Keep your employment history consistent and easy to explain.
Taking the Right Steps
Shop Around for the Best Rate
- Research and compare rates from multiple lenders.
- Consider factors such as fees, interest rates, and loan terms.
- Get preapproved for a mortgage before shopping for a home.
Get Preapproved
- A lender agrees to specified loan terms as long as your financial situation doesn’t change before signing.
- A preapproval letter gives you an idea of how much house you can afford and shows sellers you’re serious about buying.
- Can be obtained online in as little as three minutes.