6 Things You Need On Your Mortgage Application Checklist
Despite the pandemic, mortgage debts saw a record high in 2020 to an outstanding $10 trillion. This is mainly due to the number of people applying for mortgage loans. The home loan market is one that has remained intact through the financial crisis.
If you’re in the process of mortgage application yourself, there are several things you need for your mortgage application checklist. Do you have the right documents? Do you have the right down payment amount?
Applying for your mortgage may be one of the most demanding experiences you go through. Buying a home, especially for first-time homebuyers, can be taxing, stressful, and downright daunting. However, we’ll ease off the pressure for you by guiding you through the 6 most crucial things you need to check on your mortgage application checklist.
1. Consider If You Have Enough Down Payment
How much of a down payment do you have saved up? Unless getting a mortgage is something you have been planning for a few years, there’s a very high chance you may not have enough. This means the first thing you have to do is start saving up for your down payment.
The amount of down payment you need will highly depend on the amount of money you need for your mortgage. Most lenders recommend a 20% down payment so you can avoid private mortgage insurance. A PMI can cost you several hundred dollars every month if you have a down payment of less than 20%.
In case you don’t have enough money saved up, you can create a substantial budget to generate cash. The sooner you start saving, the sooner you can start applying for your mortgage. Strive to be disciplined in both your incoming and outgoing finances so you can reach your goals faster.
It’s advisable that you don’t spend over 28% of your overall income on your mortgage. It’s even more important that your debts don’t eat up over 36% of your overall income. This means that you need to be reasonable about how much of a mortgage you can afford before you start with the mortgage application process.
2. Consider Whether Your Credit Is Ready
Your credit history may seem like the most daunting part of a mortgage application process. This is where all your efforts to save the right down payment will pay off. You see, once you sign all the right documents and get your mortgage, it will stay with you for many years to come.
You need to understand home mortgage loan rates and know exactly how much you can manage without compromising your credit score. There are several factors you should consider, like potential threats to your income, your current credit score, and the amount of down payment you have saved up.
When it comes to credit score, if it’s currently below 800, you’re undoubtedly going to pay a higher interest rate. The difference may not seem significant, but between 3.9% and 4.9% is about $32,000 on a 150 thousand dollar 30-year mortgage.
3. Check Your Credit Report
Your credit report will play a significant role and the number of loan accounts and the interest rates you qualify for. Check all the details on your credit report before you start your mortgage application process. Get a free copy of your credit report from Credit Bureaus, and have a target of 700 scores and above.
It’s possible to get a mortgage with a score below 700, but you’ll miss out on the competitive mortgage rates. If you have a low credit score, start by paying off your debt and reducing your credit card balances. Unless absolutely necessary, avoid opening or closing any credit accounts at least two years before your mortgage loan application.
4. Have You Compared Mortgage Rates?
One of the most important steps of your mortgage application checklist is mortgage rate comparison. If you already have your finances in order, or when you get to that point, you need to compare rates depending on how much of a home you can afford. You should apply for your mortgage from as many lenders as possible.
This will give you a chance to compare what everyone has to offer and help you make an informed decision. It’ll also give you the chance of getting the best rate in the market. The trick here is to send the application all that one so that the multiple inquiries they will make on your credit report will have less of an impact on your score.
5. Do You Have the Right Documents?
There are several standard documents you need to take on your mortgage application checklist. Some of these documents include personal identification, social security card, pay stubs, and bank statements, as well as your tax documents.
Lenders may also ask for your investment account statements, your list of all monthly debt to check your debt to income ratio, and your rental information or landlord reference. All these documents will help lenders verify the information they need to approve your more loan. You should also get the mortgage application form.
6. Have You Been Pre-qualified?
Even if you have everything in order and think you may be able to afford the specific amount, the lender may not agree. For you to be sure that lenders will qualify you for the amount of mortgage you need, you need to get pre-qualified. Pre-qualification is a process that involves providing information to your prospective lenders regarding your income, debts, and assets.
With this information, the lender will get back to you with a ballpark idea of how much you may qualify for. At this point, they could also offer you information about the mortgage rates you’re bound to face, and you learn more about the mortgage application fee you’ll pay during the whole process.
Mortgage Application Checklist: Everything You Need to Know
If you are currently in the market for a home, these are some of the things you need to check on your mortgage application checklist. Once you have everything in order, it’ll be easier for you to qualify for the amount of loan you need. When you finally go house hunting, make sure that you stick to your budget even when you fall in love with the given house.
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