Mortgage lenders are more critical on loan applications because of the credit crisis and the number of bad loans. Foreclosures of real estate have forced lenders to examine mortgage applications with more attention to the fine details. However, the real estate market is experiencing a “buyer’s market” because there are more pieces of real estate for purchase than there are buyers. Once you have found the perfect home for you, you will need to begin the loan application process. If you are preparing to purchase a home or real estate, there are ways you can prepare for the mortgage application to increase your chances of being approved for a loan.
Review your credit report –
Reviewing your credit report is the first step in preparing to apply for a mortgage. Mortgage lenders are scrutinizing mortgage loan applications because of the credit crisis. Therefore, it is imperative that your credit report is in the best health possible before you apply for a mortgage.
- Order your free copy of all three credit reports from AnnualCreditReport.com
- Check each report for incorrect information and file a dispute to have the mistake removed from your credit report
- Pay off delinquent accounts, charge-offs, collections and judgments. These types of accounts will ruin your chances of getting a mortgage.
- Reduce your debt-to-income ratio and keep it down by paying off accounts and not charging any new debt. Your debt-to-income ratio should be as low as possible but no more than 12% to get a good interest rate.
- Make all payments on or before the due date to show mortgage lenders that you are dependable. Put as much time between your last late payment and your loan application by making all payments on time.
Create a budget –
You should already have a budget; however, if you do not already have a budget now is the time to create one. You must know your income and expenses before you can determine how much of a mortgage payment your budget can handle. Do not forget to budget for taxes, insurance and repairs as well.
Save for a down payment and closing costs –
Of course, the more you can save for a down payment the better because you will have more equity in your home and lower monthly payments. In addition to your down payment, you will need money to pay for closing costs (it is much better to pay closing costs rather than finance them) and moving expenses. Furthermore, there are always some unexpected expenses that you should be prepared for when purchasing a home.
Begin gathering paperwork and information –
Before you sign your name about one hundred times at the closing table, you will feel as if you have jumped through a thousand hoops. Before you fill in your name on the mortgage application, be sure you have the following documents and information ready to provide to the mortgage lender:
- History of residency – name, address and phone number of each landlord for the past two years if you are renting. If you own your home, the name, address, phone number and account number of your current mortgage lender.
- Employment history – name, address, phone number and dates of employment for each employer during the past two years.
- Income verification – copies of tax returns for the past two years with copies of all W2s, 1099s, social security statements and other sources of income and copies of pay stubs for the past six months. If you are self-employed, be prepared to submit P L; statements for the last six months.
- Asset verification – copies of bank statements, mutual fund accounts, retirement accounts, real estate tax notices, vehicle registrations, boat registrations, etc.
- Current debts – list of each debt you currently have with the balance due and minimum monthly payment
- Copy of the sales contract
- Copies of your driver’s license, state-issued ID card or military ID card and copy of your social security card
For more information about mortgage loans and the mortgage application process, read ” Your Step-by-Step Mortgage Guide ” by Freddie Mac and ” Home Mortgages: Understanding the Process and Your Right to Fair Lending ” by The Federal Reserve Board.
