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9 Things To Do Before You Apply For a Mortgage

Applying for a mortgage can seem like a scary thing but don’t be intimidated- regular people do it all the time! We’ve got nine pretty simple tips to help you become more prepared and help you get the best loan you can!

1. Know How Much You Want to Spend

This is one of the most basic, yet critical parts of financing. Hopefully by the time you’re ready to be pre-approved, you and a real estate agent have already met, and you’ve narrowed down your search to a certain area and price point.

Helpful tip: Most lenders want your monthly mortgage payment amount to be 28% or less of your monthly income, so make sure you’re not asking to borrow too much.

2. Know Your Local Housing Market

The title of this should really be “Be Reasonable,” especially in markets like Austin. Many buyers that have relocated from other areas tend to have some sticker shock at first. Find a good real estate agent that will be honest with you about what prices are in your area.

Helpful tip: Fill out one of our forms and we’d be happy to connect you with an agent that knows the Austin market. 

3. Get Lender Recommendations

Your lender can actually have way more of an affect on your home buying process than just interest rates and terms. Some lenders can take a longer time to process documents than others, have appraisers that know the market (or don’t), take longer to fund the mortgage (which means you don’t get your house keys until later), etc. While some lender’s interest rates might be overly tempting, talk to your agent and friends about which lenders they recommend and which ones they don’t. 

Helpful tip: Check out local credit unions – oftentimes they can offer different loan options because they have different Federal regulations than banks.

4. Don’t Stress About 20% Down Payment

We cover this in great detail later on in our Condo Guide but please do not wait until you have a 20% down payment to look at a house. Many lenders are just fine with buyers having 3-5% down, especially if all of your other financial indicators look great.

Helpful tip: Closing costs in Austin vary depending on several factors but usually range between $5,000-$6,000. Make sure you set aside that amount or ask your lender about potentially folding that into the loan.

5. Check Your Credit Score

While we all would like to think that our credit score is over 800, the reality is that many people don’t really even know what their score is. Stop guessing and sign up for a free credit report. Your credit score is only a part of your overall credit worthiness but you’ll want to put your best foot forward, and knowing where you stand now is important. After all, didn’t they say that knowing is half the battle?

Helpful tip: You should never pay for a credit report – you get to check it for free once a year at Annualcreditreport.com or sign up for a free credit reporting service like CreditKarma.com.

6. Pay Off Debt

This suggestion is another reason why many potential buyers wait too long to buy- they think that they have to have all their debt paid off before they can qualify for a house. The reality is far more reasonable and nuanced than that. Not all debt is the valued the same, so student loans, car loans, and mortgages are considered differently than credit card debt. Pay off your cards and other smaller loans to help your credit worthiness rise!

Helpful tip: Know how much you pay per month for your existing loans. Lenders want to see that no more than 36% of you monthly gross income goes to revolving loans (like car payments and credit cards) 

7. Avoid Big Purchases

It might sound like a no-brainer to avoid buying anything major while you’re getting ready to buy a house, but so many people do it. Don’t buy that new car (or anything else expensive or requiring a loan) until after you close.

Helpful tip: If a store is having a sale on something you want for your new place, ask them when they will have similar sales or if they can honor the price after you close. Many times people understand the challenges of financing and might be able to work with you.

8. Make sure You’ve Filed Your Taxes

Hopefully this is one that you can easily check of your list… but if not, get on that quick! Lenders usually require your last two years worth of tax filings to verify income among other things. 

Helpful tip: If you’re not current on filing your taxes, ask your lender for recommendations on the best way to proceed. Mortgage lenders get paid when loans close so they’re motivated to help you!

9. Gather Basic Paperwork

Most loan applications will be done either in part or completely online. Save yourself and your loan officer time and hassle by having a few pieces of info handy. While required documents may vary a bit from lender to lender, here’s our list of things to have ready:

  • Last 2 years of taxes
  • Most recent monthly pay stubs from anyone on the mortgage loan
  • Bank account statements for the past 3 months

Helpful tip: Banks want to see steady, reliable buyers so be prepared to explain any large or unusual deposits or withdrawals.