Understanding Financing Terms

3 Ways To Prepare To Apply For A Home Mortgage Loan

If you know that you want to purchase a home this summer, this winter you need to start getting ready to apply for a mortgage loan. It can take some time to complete the tasks necessary to get ready for a home mortgage loan, which is why you want to give yourself at least a few months to prepare.

Check Your Credit Score

The first and most important thing that you need to do is check your credit score. Your credit score can provide you with a wealth of information about where your finances stand and what type of a candidate you will look like to a bank.

When you get your credit report, the first thing that you want to do is see if there are any errors. If there are errors, such as a wrong address listed or an error with an account that is listed, you should attempt to contact the credit bureau directly and work to fix the situation. This can take a while to sort out, and could require you to provide documentation of the inaccuracies, so it is best to get started on this right away.

Your credit report can also allow you to see what your credit score is. This will let you know if you have a good, average, or poor credit score, which should correspond to the type of risk that a bank will see when you apply for a loan.

Improve Your Credit Score

Unless you have a nearly perfect credit score, there are probably things you can do over the next few months to improve your credit score. Unfortunately, most of those things include money.

For example, if you have a high balance on your credit cards, you should pay them down. This will help reduce your debt to income ratio. Or if you are carrying a high number of loans, this would be a good time to pay off any smaller loans that you are carrying.

Make sure that you are making all of your payments on time. If you have any late payments on your record, see if you can have them removed. If you can't, work on making all of your payments on time until you have 12-months' worth of on-time payments.

Save Up Your Cash

Finally, you really need to make sure that you are prioritizing saving. You are going to need to have money saved up for a down payment. Depending on the type of loan that you apply for, you may have to make a very low down payment of less than five percent the cost of the loan, or a high down payment of 20% of the loan.

You also want to have money left over after you make a down payment. Having extra cash will make you look good to the bank, and it will also provide you with moving money and money for fixing up your new home.