A lot of people shy away from the idea of buying a house, simply because the mortgage process is complex. In addition to a down payment, there are also other things to consider like credit rating, income stream, and application process.
Signing up for a mortgage isn’t that hard, as long as you know what you’re getting into, where to look, and how to find the best mortgage partner or lender.
In this article, you’ll learn the best mortgage application tips for making your application process smoother.
Types of Mortgages
Choosing the type of mortgage is important in the overall home buying journey. Generally, there are two types or mortgages, fixed-rate and adjustable-rate. Under a fixed-rate mortgage, the interest rate will remain the same throughout the entire loan term.
The adjustable-rate mortgage is the complete opposite, with interest changing on a specific schedule. After the fixed promotional period, borrowers deal with lower or higher interest, depending on the market rate.
Things to Do Before Applying for a Mortgage
Because a mortgage is a long-term commitment up to 30 years, you want to think it through and make a plan. In order to get approved, there’s a couple of things that you can do.
Know How Much You Can Afford
Most lenders will assess a borrower’s financial profile to see how much money they can borrow to buy a house. Prior to this process, look at your finances and carefully analyze what you can afford to pay back.
Calculate your household income and see how much money you can set aside for paying monthly mortgage repayments. There are many online mortgage payment calculators that can help you determine what payments are feasible for you.
Improve Debt-to-Income Ratio
The pre-application will tell you if you qualify for a specific loan amount or not, and there are many factors that go into this decision. One factor is your debt-to-income ratio, which depicts the amount of debt you have in comparison to the amount of income you bring in.
You can improve your debt-to-income ratio by paying off debt and seeking a salary increase by asking for a raise or switching to a high-paying job. Generating more income helps your profile for the mortgage application.
Save Up for a Down Payment
When applying for a mortgage, you’re not relying on the full amount in order to buy a house. A down payment is needed to reduce the risk to the lender.
As much as possible, save up more than 20 percent of the total house value, so your mortgage loan amount is lower.
Choose the Right Loan
Learn about your loan options to get the most out of the mortgage. If this is your first time buying a house, a lot of banks offer rate-friendly plans for you. Talk to a representative at your banking institution to discover the best options available to you.
Mortgage Application Requirements
There are a number of documents required by a bank or lender to issue a mortgage loan. These documents are standard, though some institutions may require further documentation.
One type of documents necessary for application is proof of employment. These documents include salary slips, certificate of employment with an indicated position, length of time at current employer, and employer address and contact information.
Make sure to provide your Social Security Number, two-year W2s, public assistance (if any), and pension, if applicable.
Further documentation includes proof of assets such as secure bank account details, real property, investments (stocks, bonds, retirement accounts), and gifted funds from relatives.
Applying for a mortgage requires patience and preparation. Ensuring you meet the requirements and preparing your documents beforehand can help simplify the application process altogether.
Consult experts in the field, to find the best mortgage options suited to your financial situation. Work closely with the lender to understand additional conditions or hidden fees that you can expect throughout the loan term.