Items you will need
- Credit report
- Income documents (W-2s, pay stubs)
Mortgage loan applications can be tricky. There are many mortgage lenders and a similarly large number of individual loan programs. Before you wade hip-deep into the mortgage market, take stock of your current financial position and learn as much as you can about the programs available. However, once you gain some knowledge, the actual mortgage application process is not complex.
Access a free copy of your credit report from the Annual Credit Report website (see Resources). A mortgage rate and payment often hinges heavily upon your credit standing. Pay for a copy of your FICO score, too. This number shows lenders your overall creditworthiness. Scores over 720 are very good while scores below 600 are considered poor.
Calculate how much house you can afford. Look at potential homes and figure out what the mortgage balance will likely be.
Use your credit score to estimate a rate and payment for each potential property. Use the calculator in Resources to help you determine rates and payments. You will need these figures to determine whether you'll be able to afford these mortgages.
Calculate your debt-to-income ratio (DIR) for each prospective home. To find your DIR, divide the sum of your monthly bills on your credit report by your gross monthly income. Multiply this figure by 100. Most lenders want your DIR to be less than 45 percent before financing your mortgage.
Research lenders once you have determined your ability to afford potential homes. If you have great credit, stick to local banks and credit unions. If you have some credit issues, also look at finance companies.
Apply in person, especially if this is the first time you have looked for a mortgage. Do not apply randomly over the phone with a non-local broker, especially if the broker solicited you. Instead, find a variety of local lenders, set up appointments and go into an office to take an application.
Bring your income documents to the application meetings. This will help the loan officer complete the form with you. You will also need to know your employer's contact information, your assets (how much you have in savings and retirement accounts) and how long you have been at your job.
Be honest when discussing your credit. The more a loan officer documents any credit problems, the more favorably an underwriter will look at these problems.
Complete and sign the application. This should generate a loan offer. At this point you can choose to continue with the lender and loan officer or terminate the application.
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