8 Things to Do Before Applying for a Mortgage

Unless you happen to have a few hundred thousand dollars hiding under your mattress, buying a house usually means applying for a mortgage. That's the part where someone gets to take a very thorough look at your finances.

Fortunately, you don't need to become a mortgage expert before you apply. You just need to know what we're getting into.

Here's where to start.

1. Check Your Credit Before Anyone Else Does

There are certain things you’d rather discover yourself than have someone else point out to you. A mistake on your credit report belongs on that list. Your credit can affect whether you qualify for a mortgage, as well as the terms you’re offered.

Credit score requirements vary, depending on the lender and type of mortgage, so there isn't one magic number that works for everyone.

Take a look at your credit reports before you start applying. If something’s wrong, you'll be much happier to find it now than when you’re trying to buy your dream house.

2. Figure Out What You Can Afford

This sounds obvious until you start looking at houses. Then, somehow, an extra bedroom, gorgeous kitchen, and backyard can have you performing financial gymnastics we never knew we were capable of.

Before that happens, look at the whole cost of homeownership.

The mortgage payment is only part of it. Property taxes, homeowners insurance, maintenance, utilities, and other expenses will still be waiting when you get the keys.

And don't forget the upfront expenses. Closing costs include lender and third-party fees, so the down payment isn't the only pile of cash you’ll need. A lender may tell you how much it's willing to lend. But, that doesn't mean you have to spend every penny of it.

3. Start Collecting Your Financial Paper Trail

Applying for a mortgage means proving your financial life really does look the way you said it does.

During underwriting, lenders may verify information about your:

• Employment

• Income

• Assets

• Debts

• Credit history

Exactly what you’ll need depends on your financial situation. Starting a folder early can save you from searching frantically for a bank statement while muttering colorful words into your laptop.

4. Shop Around for the Mortgage

We compare prices when we buy televisions and book hotels. So, we should probably compare prices before borrowing enough money to buy a house.

Mortgage lenders can offer different interest rates, fees, and loan terms to the same borrower. So, talk to more than one. And multiple mortgage credit checks made within a 45-day window are generally recorded as a single inquiry for scoring purposes.

This is one shopping trip where being picky can pay off.

5. Don't Let the 20% Down Payment Scare You Away

Twenty percent is a hefty down payment. But, it’s not a universal admission fee for buying a house.

Different mortgage programs have different requirements. An FHA loan, for example, can accept a down payment as low as 3.5% for eligible borrowers.

But, a lower down payment will also affect the monthly mortgage. So, if you thought everyone needs 20% sitting in the bank before buying a house, it's worth finding out what options are available to you.

6. Apply and Let the Lender Dig Through Everything

Once you’ve chosen a lender and submitted the application, the underwriting begins. This is where the lender takes a much closer look at whether you can afford the loan.

There may be questions, requests for another document, and a moment when you wonder how one mortgage could possibly require this many PDFs.

Responding quickly can help keep things moving.

7. Keep Your Finances Boring for a While

The mortgage approval process isn’t the moment for a dramatic financial plot twist. Opening a new credit card, taking out another loan, or making a large financed purchase can change the financial picture the lender used to approve the mortgage.

That's why we’re generally advised to avoid taking on new debt before closing. So, yes, the empty living room may desperately need a sofa. Let it be empty for another week.

8. Read the Final Numbers

By the time you reach the closing, you may be so ready for the whole thing to be over that every document starts looking vaguely identical. Make sure your eyeballs stay with you. You’re almost there. 

A closing disclosure lays out the final details of the mortgage, including the interest rate, monthly payment, fees, closing costs, and the amount we'll need at closing.

Borrowers generally receive their closing disclosure at least three business days before closing. Use that time wisely. If something has changed, doesn't make sense, or looks wrong, ask about it before you sign.

The House Comes After the Paperwork

Applying for a mortgage is intrusive, tedious, and occasionally ridiculous. But, the process is much less intimidating once you know what's coming.

Check your credit. Know your budget. Get the paperwork together. Compare the loans. Then, when the lender inevitably asks for one more document, send the PDF and keep it moving.

There are pretty little keys waiting for you at the other end of this thing.

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