First, you need to check your credit score. This number will be your first introduction to any potential lender, and they’ll use it to glean a picture your overall financial health.
A bad credit score doesn’t necessarily mean you can’t get a mortgage, but it means that the terms of the loan probably won’t be as good as they would be if you had good credit. Bad credit scores mark potential borrowers as higher risk, and the borrowers could be forced to pay higher interest rates and larger down payments to compensate for that extra risk.
Don’t despair if your credit score isn’t where you want it to be. There are steps you can take to improve your credit score now, before you ever apply.
A mortgage is a big loan, and lenders will probably want it to be one of the only ones you’ve applied for recently. Old loans won’t usually disqualify you, as long as you’re making your payments on time. A recent loan or new credit card, on the other hand, could look bad to potential lenders.
That’s in part because loan applications and hard inquiries on your credit can negatively impact your credit score. Those little dents aren’t usually a problem over time, because your score improves as you pay off those loans and as the hard inquiry on your credit falls off, but make sure you give yourself time to rehabilitate that score before applying for a mortgage.
If you currently have lots of debt to your name, lenders won’t be eager to help you add debt to your financial profile. Even if you’re not drowning in debt, try to pay off as much of it as you can. Minimize your credit card bills and pump some money into any long-term loan debt you’re working on erasing. It shows lenders that you’re serious about paying off loans and that you can be trusted to stick to payment plans over a long period of time.
You’ll want to save money for down payments and closing costs, but using any extra cash to pay down debt will help spruce up your financial profile at a crucial point. This will also help improve your credit score, though there can be a delay between the debt payment and the credit score improvement.
This one may seem counterintuitive at first. While you do want to pay off credit card debt, you don’t want to close credit card accounts altogether. When you close a credit card account, you lose that line of credit from your financial profile, and your credit score will usually sink.
The best way to use a credit card is to have as large of a line of credit as possible, use only a fraction of it, and pay off the debt quickly.
As you focus on reducing your existing debt, don’t let any extra debt pile up. Keeping up with your bills won’t help your credit score, but falling behind will hurt it. Showing lenders you can keep the lights on and the water running is an important step in getting them to trust that you can pay to keep a roof over your head, too.
Mortgages come with closing costs and down payments, so you’ll want to save up some cash. In the months before applying for a mortgage, try to bulk up your checking and savings accounts.
While you want to plenty of cash on hand, you want to avoid large deposits before applying for a mortgage. Lenders usually impose restrictions on cash gifts. Those restrictions may include providing an explanatory letter about where the large deposit came from and why. If a potential lender doesn’t know where an unexplained deposit comes from, they might decide to reject the application.
If finding a new job and buying a home are both on your to-do list, pick the home first. Lenders usually prefer applicants to demonstrate their ability to hold down jobs. There’s some leniency when it comes to getting a new position in the same career field, but in general, lenders will expect you to hold down the same job for a couple of years.
You should also try to avoid taking a leave of absence, even if you plan to return to the same job. A maternity absence usually shouldn’t disqualify borrowers from securing a mortgage, but other types of absences may.
Before applying for a mortgage, take a hard look at your budget and figure out how your mortgage will fit into that. Many lenders want borrowers to spend no more than 28 percent of their paycheck on their mortgage. Borrowers might not want to, either.
Your debt-to-income ratio, or the amount of your income that goes toward paying off debt, should max out around 42 percent. If you can shoot for a lower ratio, that’s even better. Whatever your preferred debt level, the more your mortgage eats into that, the less you’ll have to put toward car payments, student loans, etc.
Mortgage applicants are required to provide quite a few supplemental documents. Among them, you can expect to turn over two years’ worth of tax returns, a month’s worth of pay stubs, and documents related to your rental history.
These documents back up your promise to repay the bank for the loan. It’s proof that you actually have the income and financial history that you claim.
Once you’ve done everything else on this list, you’re ready to apply for a mortgage! Just make sure to hold off on any other major purchases, at least until after you’ve closed on your loan. Trust me that buying a brand-new car right before closing is not a good idea.
Applying for a mortgage isn’t easy, but it’s manageable. Once you’re done, you’ve taken a major step toward homeownership. If you have any questions about the application process, don’t hesitate to reach out or leave a comment below!
“Baret Grigorian was amazing!! From start to finish Baret was there to help in every way. I never felt like I had to call him to follow up on my loan transaction and he always kept me informed. He was able to get me great financing rates, a lower payment AND money back! Thank you Baret!! I look forward to working with you again in the future!!”
- Kenny D.
“This review is about Mark and Darci Richardson from CSMC Mortage in Simi Valley. This team is the BEST! For the past 12 years our home was "underwater" due to the "crash" in 2007, and unable to do anything with the mortgage except pay it. These two kept on top of things and finally the house qualified to REFI. We just completed everything and it closed last week... and they saved us over $900 a month!! That's a huge savings for a couple of senior citizens! We are SO happy now and finally can breathe. Thanks to Mark and Darci and CSMC Mortgage for following through, jumping through all the hoops necessary and helping us out! I can't recommend them more... they are the BEST!!!”
- Shari S.
“I had the best experience with CSMC Mortgage. Buying a home is very stressful with all of the paperwork that has to be filled out. Faye was amazing! I have given several people her contact info, who are scared to take the step to homeownership. She took ALL of the stress away for me. I honestly, didn’t have to do much. She accommodated my crazy work schedule and help me get things done in a timely manner. She made me feel so comfortable and at ease. There were no surprises when it was time to sign and pay. I highly recommend her to anyone in need of her services and guidance. I can’t thank her enough.”
- Lisa M.
“These folks are conscience and easy to work with. The “calm” as the “storm” of home loans rolls through! I would not use anyone else. They make sure ALL your questions are answered, be that what competitors may have offered, or ads you may have heard or seen. What a pleasure to do business with. Thank you team CSMC.”
- Michael G.
“CSMC Mortgage took great care of us and our home buying needs. Tony was more than we could have ever asked for, he went above and beyond for us and we couldn’t have been more grateful for all his hard work. CSMC Mortgage has a great and friendly staff, I would highly recommend them to anyone looking into buying a home.”
- Jannet A.
“Faye helped me purchase my first home last year. She was very professional and worked very quickly to help me procure financing. She made herself available around my schedule and took the time to explain my options for financing to help me get the lowest rate possible. Would highly recommend her to anyone looking for someone that is professional, highly knowledgeable, polite, and responsive.”
- James Z.
“David Honda and his team rocked!! They had great technology that took so much of the pain of home buying away. They were attentive to our specific needs and were on top of our loan process! David was always available, even when he was in Hawaii, and super responsive! Thanks David, Melissa and the team for an easy and great home buying experience.”
- Raymond F.
“With this being my first home purchase, my loan officer was very good at explaining everything to me and helping me with all my needs. Thank you for having such great people in the right place!”
- Cathleen H.