It is more important than ever to prepare your loan for a mortgage application.
What to do before applying for a mortgage
Cleaning up your credit report and boosting your credit score will improve your chances of getting approved. If your credit is already good, maintaining it will be key in locking in a low interest rate.
1. Check your credit reports
When you make your application, the mortgage lender looks for three main things: steady income, down payment, and a solid credit history.
Checking your credit report will allow you to see if there is anything that hurts the loan. You never know what credit report a bank will pull, so check all three. You can get a free copy of all three credit reports at AnnualCreditReport.com.
- How to order a credit report
- Credit Repair Checklist
- Avoid free credit reports
2. Incorrect dispute information
Misinformation can hurt your credit score and reject the application. Eliminate inaccurate information by challenging it to credit bureaus. If you have evidence of an error, providing it will help remove the error from your report.
- How To Make A Dispute From A Credit Report
- Example of credit acknowledgment letter
3. Pay off unpaid bills
Delinquent accounts include all late bills, repayments, collection bills and judgments. Mortgage lenders must be assured that you will make your payments on time.
Extraordinary delinquencies will kill your chances of getting a mortgage. Pay off all the bills that are currently defective before you mortgage.
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4. Bury delinquencies with timely payments
You need to establish a timely payment pattern to get a mortgage approval and a competitive interest rate.
If you have a recent down payment – or have just paid some delinquency – wait at least six months before applying for a mortgage. The older the delinquency, the better your credit looks.
5. Reduce the debt-to-income ratio
Your mortgage protector will question your ability to make a mortgage payment if you have a high level of debt relative to your income. Bring your monthly debt payments to a maximum of 12% of your income – the lower the better. (Once you get a mortgage, your debt to income ratio will accelerate, but should not exceed 43% of your income.)
- How to calculate debt to income ratio
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6. Check your FICO score
Order your Equifax and TransUnion FICO scores from myFICO.com to get an idea of where your credit is. Your FICO score should be at least 720 to get good credit interest. If your score is lower than that, read through the analysis included to find out what your score brings. Note: Although lenders continue to use it, Experian no longer allows consumers to buy expert data from loans based on FICO databases. If you want to get an idea of your Experian credit score, you can buy VantageScore or buy a credit score of three in one of Equifax or TransUnion.
- Free FICO Grade Assessor
- FICO Vs. FAKO Scores
- How to order a credit score
7. Have no new debt
Taking on new debt can make a mortgage lender suspicious of your financial stability – even if your debt level remains below 12% of your income. It’s best to stay away from new loan-based transactions until you get a mortgage. This involves applying for a credit card, especially as credit issues affect your credit score.
- 7 Tricks to Stop Using Credit Cards
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