Before you go and apply for a mortgage, make sure you have done everything possible to make the process run as smoothly as possible.
1. Save Up for a Traditional Down Payment
First, you need to set your goal to save for a traditional down payment. A traditional down payment requires you to put down 20% of the purchasing price of the home. That means if you want to purchase a home that is worth $250,000, you would need to save up to $50,000 for a down payment.
By saving up enough money to put down a traditional down payment, you will be able to skip out on having to pay personal mortgage insurance, which can add to the overall cost of the loan. There are lots of loan programs that allow you to put down less than 20% for a home loan; however, being able to put down 20% increases your equity in the home from the beginning and decreases how much you will end up paying for your home.
2. Know Your Credit Score
Next, you need to know what your credit score is and what information is on your credit score. You need to know what your credit score is with each credit reporting agency, as the same information is not always reported to each credit reporting agency, and the same misinformation may not be found on each credit report. You need to know what is on your credit report so you can own that information when asked about it.
3. Try to Boost Your Credit Score
Almost everyone could spend some time to increase their credit score. The key is to figure out what you need to do to increase your credit score. Do you have an account in collections? Pay it off and see if you can get the collection note removed from your credit report. Have you missed some payments? Make your payments online for a few months before applying for a loan. Are your credit cards maxed out? Pay them down. Find something you can do while you are saving up for your down payment to improve your credit score.
4. Get Your Information Together
Finally, get your information together for the loan process. You are going to need to provide the lender with detailed information for at least the last two years about your income and assets. You are going to want to have documentation of every savings account, checking account, and investment that you have. It can take a while to get this information together, so start working on this now.
Before you apply for a loan, save up for a traditional down payment so you can avoid having to pay for personal mortgage insurance and so you'll have more equity in the home when you purchase it. Know your credit score, and try to give it a little boost before applying for a loan. Start getting all your financial information together so you can provide the mortgage broker with all the requested information as quickly as possible. Reach out to a real estate lender for more information.