7 Tips on How to Prepare for the Mortgage Application Process

Jul 30, 2023
90 People Read
Learn the main steps on how to prepare for the mortgage application process with these seven tips.
Table of Contents
  1. Steps in the Mortgage Application Process
    1. Preapproval
    2. House Hunting and Making an Offer
    3. Loan Application
    4. Loan Processing
    5. Appraisal
    6. Underwriting
    7. Loan Approval
    8. Closing
  2. How to Prepare for the Mortgage Application Process
    1. Tip #1 - Determine Your Budget Ahead of Time
    2. Tip #2 - Start Saving For a Down Payment Early
    3. Tip #3 - Review Your Credit Score
    4. Tip #4 - Get Your Documentation Ready
    5. Tip #5 - Get Preapproved
    6. Tip #6 - Understand Lending Criteria
    7. Tip #7 - Don’t Take Out Any New Credit
  3. Final Thoughts

Buying a home is no longer just a symbol of reaching adulthood–it’s a serious financial commitment that requires comprehensive planning and preparation. 


The objective of this article is to break down the process of how to prepare for the mortgage application process and equip you with essential tips to navigate it effectively. 


By the end of this article, you will not only have a clear understanding of how to prepare for your mortgage application, but also the confidence to take the first step towards owning your dream home.


Steps in the Mortgage Application Process


Navigating the mortgage process can seem like a daunting task. However, with the right information and guidance, it can be broken down into manageable steps. 


Here are the key stages involved in a typical mortgage process:


Preapproval


Before house hunting, it's a smart move to get preapproved for a mortgage. This involves a lender checking your credit history, income, debts, and assets to determine how much they'd be willing to lend you.

Preapproval not only gives you a clear idea of your budget but also makes you a more attractive buyer to sellers.


» MORE: The Role of Lenders in the Preapproval Process


House Hunting and Making an Offer


Once pre-approved, you can start looking for houses within your budget. When you find a house you like, you make an offer. If your offer is accepted, the lender will move forward with the loan application.


Loan Application


This is the official request for a mortgage and typically involves providing detailed information about the property and your financial status.

The loan application is a comprehensive document, so be prepared to take your time as you fill out each section to ensure there are no mistakes with the information you provide to your lender.


» MORE: How Long Does the Mortgage Application Process Take?


Loan Processing


Once your application is submitted, a loan processor will verify all the information you've provided. They'll check your employment history, credit scores, and bank statements. This process might involve getting additional documents and clarifications from you.


Appraisal


The lender will order an appraisal of the home to make sure the property is worth the price you're willing to pay. If the appraisal comes in lower than your offer, it can affect the loan amount the lender is willing to give you.


» MORE: Understanding Home Appraisals and Mortgages


Underwriting


The underwriter is the decision maker. They will evaluate all the information, including the appraisal, to decide whether to approve your loan. They might ask for additional documents or clarification during this stage.


Loan Approval


If everything goes well in underwriting, you will be approved for your mortgage. This can be a conditional approval, which means there are a few more boxes to tick before you get the all-clear.


Closing


Once your loan is fully approved, you'll go to the "closing" or "settlement". This is when you sign all the final mortgage documents, the seller gets paid, and you get the keys to your new home.

In most jurisdictions, there is no right of rescission after signing the closing documents at settlement, meaning there is no going back on your purchase.


How to Prepare for the Mortgage Application Process


Tip #1 - Determine Your Budget Ahead of Time


This initial step is vital to ensure that you don't overstretch your finances. Look at your income, current expenses, and future potential costs. Consider all aspects of homeownership, such as property taxes, homeowners insurance, and maintenance costs.

Online mortgage calculators can be useful tools to figure out how much you can afford to borrow based on these factors.

Tip #2 - Start Saving For a Down Payment Early


The size of your down payment can significantly affect the terms of your mortgage, including the interest rate and the requirement for mortgage insurance.

As a general rule, a down payment of 20% of the home's price can help you avoid extra costs, but this may vary based on the type of mortgage you choose. Start saving as early as possible to maximize your down payment.


» MORE: Tips When Saving for a Down Payment


Tip #3 - Review Your Credit Score


Your credit score is one of the most significant factors lenders use to determine your mortgage eligibility and interest rate. Review your credit reports from all three major credit bureaus (Experian, TransUnion, and Equifax) for errors, and dispute any inaccuracies.

If your credit score is low, you may need to take steps to improve it before applying for a mortgage.


Tip #4 - Get Your Documentation Ready


You'll need to provide several documents during the mortgage application process, including tax returns, W-2s, bank statements, and pay stubs. Having these documents ready ahead of time can speed up the process and help you avoid potential delays.


Tip #5 - Get Preapproved


A mortgage preapproval is a letter that lenders give borrowers showing that they qualify for a mortgage. It gives you a clear idea of what you can afford and shows sellers that you're a serious buyer.

The preapproval process involves a thorough check of your finances, so make sure you've completed the previous steps before applying.


Read more: The Impact of Mortgage Preapproval on Your Credit Score


Tip #6 - Understand Lending Criteria


Lenders consider several factors when deciding whether to approve a mortgage, including your credit score, debt-to-income ratio, employment history, and the property's value.

Understanding these criteria can help you determine your chances of approval and identify areas you need to improve.


Tip #7 - Don’t Take Out Any New Credit


Applying for new credit can lead to a hard inquiry on your credit report, which can temporarily lower your credit score. It also increases your debt-to-income ratio, which lenders may view negatively.

Therefore, avoid taking out new credit in the months leading up to your mortgage application. This includes auto loans, credit cards, and other personal loans.


Final Thoughts


Preparing for the mortgage application process involves much more than just choosing your dream home.


However, when tackled methodically and with due diligence, this seemingly complex process can become manageable and rewarding. 


By implementing the tips outlined in this article, you can position yourself as an attractive candidate to lenders, paving the way towards securing the home you desire for you and your family.

Related: The Role of Credit Scores in Mortgages


Trending:
How to Choose a Loan Program

Table of Contents
  1. Steps in the Mortgage Application Process
    1. Preapproval
    2. House Hunting and Making an Offer
    3. Loan Application
    4. Loan Processing
    5. Appraisal
    6. Underwriting
    7. Loan Approval
    8. Closing
  2. How to Prepare for the Mortgage Application Process
    1. Tip #1 - Determine Your Budget Ahead of Time
    2. Tip #2 - Start Saving For a Down Payment Early
    3. Tip #3 - Review Your Credit Score
    4. Tip #4 - Get Your Documentation Ready
    5. Tip #5 - Get Preapproved
    6. Tip #6 - Understand Lending Criteria
    7. Tip #7 - Don’t Take Out Any New Credit
  3. Final Thoughts