Be Prepared Before Applying For a Mortgage

be prepared before applying for a mortgage

I know how exciting shopping for a new home can be. Your mind begins creating a wish list of all of these things that you want in your next home. Maybe you want a low maintenance townhouse. Or maybe this time you want a 3 bedroom detached house with a 2 car garage and a huge back yard for your kids and pets to run around in. You start to dream about what the kitchen will look like and how big the bathrooms will be. Will you look for a place with hardwood floors and a beautiful fireplace? The list goes on and on. But before you continue creating your wish list it is important to figure out exactly how much you can afford to spend and how big of a mortgage you will qualify for. And to apply for a new mortgage there are a number of things you should get ready before you even speak to a mortgage broker.

Here is a list of things you should do before you apply for a mortgage:

Pull Your Credit Score

Pull your credit score so that you know exactly what your score is. This way you will avoid any unnecessary surprises when the mortgage broker pulls your report. As well, this will give you an opportunity to review your report for any mistakes that may be dragging down your credit score.

Pay Down Your Current Debt

The less debt you have and the higher credit score you have the better interest rate you will receive with your new mortgage. If you currently carry credit card debt make a plan to either reduce that by a significant amount, or if possible, pay it all off before you apply for a new mortgage.

Current Assets And Documents

On your mortgage application you may be asked to list your other assets, including investments, other property, vehicles, and so on. To make it easier on yourself, grab any documentation that you have for those items and make a list of those items and their current value.

Have Your Last 2 Years of Tax Returns Handy

Be prepared to show your mortgage broker a copy of your tax returns for the past 2 years to verify your level of income before and after taxes.

Other Financial Documents

Some of the other financial documents that you will want to have readily available are your current paystubs, bank statements for the previous 2 months, and any separation, divorce or bankruptcy statements. As well, if you are making any support payments, you will need to identify those amounts.

Save For The Largest Down Payment Possible

save for a large downpaymentOne of the most important things you should do before you even approach a mortgage broker is to save as much money as you can for the down payment on your new home. Even if you are only required to put down 10% to qualify, it is in your best interest to put down at least 25%. You will feel a lot more comfortable in your home knowing that you have at least 25% equity instead of 10%, or heaven forbid, even less then that. If you can put down 30%, that would be even better.

Upfront Costs

Paying for the home is just one of the expenses you will incur when you buy a new home. Other expenses that you need to have money saved and set aside for are a home inspection, moving costs and closing costs (including legal fees).

As well you will want to have money set aside for immediate renovations or updates that you may need to do as soon as you move in. If the home is older it may need some upgrades. If the home is brand new you may need to do the landscaping. All of that adds up quickly.

Create A Personal Budget

One of the things that many people forget to do when they consider buying a new home is to create a budget to see exactly what they can afford.

Create a budget based on your current income. Then add in all of the expenses that you will incur both on a monthly basis and an annual basis if you buy a new home.

As you create your budget use online mortgage tools to help you determine exactly what size of a mortgage you can honestly afford, and still live a comfortable life.

You see if you just head in to see a broker they will often do a few quick calculations and typically come up with a high number that may in fact result in a very tight budget for you later on.

But if you have done all of your homework you will already know if what they offer you is too high or well within your comfort zone.

When buying a new home, always stay within your comfort zone. This is not the time to take risks or to over-extend yourself. And always do your homework before you call a mortgage broker and before you start looking at new homes. You want your decision to be based on your financial situation, instead of big backyards and pretty kitchens.



    • DC @ Young Adult Money

      DC @ Young Adult Money 08/27/2013 5:15 a.m. #

      As far as documentation goes, I actually would recommend talking to the loan officer before trying to get anything ready. That way you know exactly what you need (last two pay stubs, bank statements, etc.) before you start pulling all the paperwork.

      • Sicorra

        Sicorra 08/27/2013 9:49 a.m. #

        I believe last 2 paystubs and bank statements for the past 2 months are on the above list.

        People need to be prepared upfront before speaking with a broker. Once they begin speaking with a broker they get pulled into this false sense of having more money then they do because he wants to get them into as high a mortgage as possible. And if they haven't crunched the numbers on their own and gotten all of their paper work in order they may just agree to what the broker offers them without knowing if they can afford it or not.

    • Michelle

      Michelle 08/27/2013 6:32 a.m. #

      These are all great things to do/have when applying for a mortgage. It's always best to be prepared!

    • Apollo

      Apollo 08/27/2013 7:56 a.m. #

      Nice post, I think most people approach home ownership the wrong way to begin with which is why they end up with difficulties. They view their home as an asset which may be their biggest mistake.

      • Sicorra

        Sicorra 08/27/2013 10:06 a.m. #

        Agreed! Some do not understand that a house is only an asset if you are making a return \ income on it, such as a rental property.

    • Paul

      Paul 08/27/2013 9:01 a.m. #

      The credit crisis has made it more difficult to get approved for a mortgage loan. So it’s more important than ever to prepare your credit for a mortgage application. Cleaning up your credit report and increasing your credit score will improve your chances of getting approved. If your credit’s already good, maintaining it will be key in locking in a low interest rate.

      • Sicorra

        Sicorra 08/27/2013 10:07 a.m. #

        It is good that it is more difficult though. Too many people were buying homes with nothing down and a low income and as soon as they hit a bump in the road they couldn't afford their house any longer. Hence all the foreclosures.

    • corinne

      corinne 08/27/2013 4:55 p.m. #

      Great tips Sicorra. I believe it's great to be prepared, especially when dealing with such a huge purchase. I really like the last tip; I feel many people save the money for the down payment but fail to consider all their monthly expenses when it comes time to pay the mortgage each month, and then they end up underwater.

      • Sicorra

        Sicorra 08/27/2013 7:35 p.m. #

        Thanks very much Corinne! I think people forget as well, and then it is a huge surprise to them. And if they have spent all they have, then they could be in trouble.

    • krantcents

      krantcents 08/27/2013 6:24 p.m. #

      Good points! I would add to make sure the mortgage payment is equal to your weekly salary or wage. It is very conservative, but it has helped me save fo rretirement and live a great lifestyle.

      • Sicorra

        Sicorra 08/27/2013 7:38 p.m. #

        That is an excellent point! It is conservative but it protects you from buying too much and gives you some breathing room when it comes to other expenses. Thanks!

    • Corina Ramos

      Corina Ramos 08/27/2013 8:01 p.m. #

      Great tips Sicorra!

      Your post actually made me realize I'm on the right track with our plan. Our long term goal includes moving close to my husband's job and while we wait we're paying off car notes and credit card bills so we can go into our new home debt free.

      The goals is to only have the mortgage and utility bills. And the advice you gave is what we and anyone else looking to buy a home needs to make sure that happens.

      Have a great night my friend!

      • Sicorra

        Sicorra 08/27/2013 8:20 p.m. #

        Thanks very much Corina! That is a very exciting goal that you guys are working on.

        And only having to pay a mortgage and utilities is so nice. Good luck with your plans my friend! I know it will work out well.

        • Corina Ramos

          Corina Ramos 08/30/2013 1:13 p.m. #

          Thanks Sicorra,

          My only regret is not having done this sooner. I know we'd be in a better position if we planned better.

          Hope you're having a great day! TGIF! I'm tired :)

    • Maggie@SquarePennies

      Maggie@SquarePennies 08/30/2013 9:23 a.m. #

      Great list! Some people get all excited after their mortgage is pre-approved and start spending before the closing. Bad idea! If you run up credit cards during that time you could even be denied your financing at closing. Wait until the papers are all signed to buy any new furniture & decor items!

      • Sicorra

        Sicorra 08/30/2013 10:38 a.m. #

        Wow...what a good point! I bet people do run out and start buying furnishings and such for their new place on credit thinking that the hard work is done.

    • Welcome Home Moms

      Welcome Home Moms 08/30/2013 11:45 a.m. #

      We just went through all of this (we are new homeowners). Very hectic time ... but in the end... well worth it!

      • Sicorra

        Sicorra 08/30/2013 6:08 p.m. #

        Congratulations! Hope you enjoy your new home :-)

    • 08/30/2013 12:02 p.m. #

      We bought our home over 15 years ago, and although I could have used this list then, we were fairly prepared. We were blessed with my husband having a great job and saved and pinched pennies so that we had a huge down payment, which helped. :) Great tips, Sicorra!

      • Sicorra

        Sicorra 08/30/2013 6:09 p.m. #

        Great to hear Donna. A huge downpayment makes a big difference. 15 years is a long time these days. You must have found the perfect home.

    • Tanya @ Eat Laugh Purr

      Tanya @ Eat Laugh Purr 08/30/2013 3:36 p.m. #

      Someday ... someday I can't wait to use this list when it comes time for me to start looking for a place to call all my own! I'm a few years away from that, which is okay by me. I think home ownership is great but I can be a bit of a commitment phobe. So sometimes when I think about staying in one place ... then I get the itch to move someplace else! HA! But I do look forward to the day when I'm ready to buy a home and I want to be smart about it. While I am a homebody, I also don't want to tie up all my money in my home either. I have to money to buy Max toys after all. :)

      • Sicorra

        Sicorra 08/30/2013 6:15 p.m. #

        It is exciting Tanya, and I am sure you will be well prepared once you do decide to buy your first home. It is important to take your time and know exactly what you want and how much it will cost you.

        And I know what you mean about not putting all of your money into a house. It is good to have money leftover to do other things as you choose to instead of just working to pay off a mortgage.

        Max needs his own room where he can throw things off of his own dresser at night :-) Our cats use to have their own room with a queen size bed. LOL

    • CarolB

      CarolB 09/03/2013 5:10 a.m. #

      Great tips for anyone planning to buy a home. We've been through several home purchases over the years, and in the recent market, it is so important to have all your ducks in a row so you can score that lower interest rate. Anyone who's thinking of purchasing a home should book mark your tips.

      • Sicorra

        Sicorra 09/05/2013 9:52 a.m. #

        Thanks Carol. We've been through several purchases as well, and while they were easy, now it will be more difficult since we are self employed. So yes, getting all of these items ready, will be helpful to any situation.

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