5 Things to Do Before You Apply For a Mortgage
Applying for a mortgage, whether it's for a purchase or a refinance, is
a major financial undertaking. It's a financial step that should be
taken very seriously. You should also go into the process with your
eyes wide open and with enough knowledge to understand what it is
happening and you move through the mortgage process. Before you start
submitting your mortgage application, there are some things you need to
do to prepare for the process.
1. Decide on a mortgage amount.
The amount you want or need to mortgage versus how much of a mortgage
you can afford may be two different numbers. You need to have a
realistic idea of the mortgage amount you can afford. One of easiest
ways to figure out how much a mortgage payment is going to be based on
the mortgage amount you want is to use a mortgage calculator or refinance calculator.
You can input the amount of the mortgage and the current interest rate
to see what the monthly payment comes out to be. You can then compare
the monthly payment with your budget to sit if the two fit. You can
continue to adjust the mortgage amount or type of mortgage to see how
this changes the monthly payment until you create an affordable
2. Decide how long you'll live in the home. People
often have the misconception that if the current interest rate is less
than what they are paying now that they should run out and refinance.
Since there are closing costs involved in a refinance, getting a lower
interest rate may not be enough to truly save you money. In order to
determine if you will recoup your closing costs in a refinance, you
should do a break even analysis,
which will tell you how long it will take you to recoup your closing
costs. If you're planning on being in the home longer than it takes you
to break even then it is usually beneficial to refinance.
Include the cost of homeowners insurance and taxes. You may be able to
afford the monthly mortgage payment, but it's also important to
consider the other costs involved in owning a home. Find out the
estimated taxes and insurance for the home and be sure to add this cost
to your monthly payment. This will provide a full cost view as to
whether or not you can afford to buy a home.
4. Check your
credit report. Especially during the economic downturn, a high credit
score is more important than ever to get approved for a mortgage.
Generally speaking, lenders are looking for credit score of 720 or
higher. You'll want to get a copy of your credit report from each of
the three credit agencies (TransUnion, Experian and Equifax) to
make sure that all of the information is correct. If you find any
incorrect information on your credit reports, correct it by contacting
the agency or opening a dispute with the credit bureau reporting the
5. Get pre-approved. If you're purchasing
a home, you may want to get pre-approved for a mortgage before you
start house hunting. Not only will a pre-approval letter from a
mortgage lender allow you to look at homes in your price range, but it
may also be a bargaining tool for negotiating the purchase price of the
Applying for a mortgage, especially in today's economy,
isn't always an easy task. You may be able to streamline the process by
doing some preparation ahead of time. Before you apply for a mortgage,
take a look at your financial situation and go through these seven
steps to make sure that obtaining a purchase mortgage or refinancing
your current one is a viable option for you.
About the Author
Kristie Lorette is a freelance writer and marketing
consultant that specializes in personal finance. She is also the editor of The
Mortgage & Credit Diva, a blog devoted to mortgage and personal finance
tips, tricks, and advice for consumers. You can read Kristie’s blog at www.mortgageandcreditdiva.blogspot.com
or learn more about her writing and marketing services at www.studiokwriting.com.