How To Prepare For Your Mortgage Application

If you are considering home financing or mortgage refinance in the near future it might be a good idea to plan ahead to make sure that your finances and documents are in order before you apply. Applying for a mortgage can be a complicated process and having everything in order can help to simplify a complicated process. Important steps in the preparation phase include; reviewing your credit reports for inaccuracies, building a solid employment history, planning your finances and saving money.

One of the first things you need to do is to obtain a copy of your credit report from each of the three major reporting agencies; Transunion, Equifax and Experian. Check your file thoroughly for any discrepancies and errors. If there are any inaccuracies you can dispute them and this must be done with each of the three agencies separately. Also, find out what your Fico score is. You want your FICO score to be as high as possible. Delinquencies and derogatory accounts have a negative effect on your score. It’s also a good idea to pay off a few of your existing loans and debt as your debt-to income ratio is a factor which determines the type and amount of loan that you will qualify for.

It’s a good idea to have stability and longevity employment wise. Most lenders prefer that you have at least two years of employment history with the same employer. Lenders prefer to see at least two years of employment within the same field and career because it shows stability. Lenders will ask to see your work check stubs and bank statements. If you are self-employed you will need to provide documentation of your income with at least two years of W-2 documents and possibly proof of other assets and business financial statements.

You will need to determine  the loan amount you can afford. Consider that you will also need to pay property taxes, utilities, homeowners insurance, maintenance costs and possibly private mortgage insurance (PMI). Work out a budget and figure out how much home you can afford. It’s a smart idea to downsize and purchase a home that you can easily afford instead of getting a more expensive home that you’ll be struggling to pay off.

It’s also imperative not to take out any large loans and make any large purchases in the months leading up to your mortgage application. This will increase your debt-to-income ratio and you will have less money available to apply towards your down payment and closing costs.

Refinancing or buying a home can be a stressful process, but you can make it a lot easier by preparing in advance and getting your finances and documents in order. It will bring you one step closer to the home of your dreams.

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