1. Obtain a copy of your credit report. Check for accuracy (make sure the address, phone numbers and accounts listed are correct) and call your local credit bureau if anything listed is erroneous.
2. Stay within your budget. Many mortgages only allow a 41% debt to income. This is the total amount of monthly debt payments compared to your monthly income. The ideal DTI is 36% or less. Stay within your limits, as you don’t want to be at risk of missing a mortgage payment due to lack of sufficient funds.
3. If you’re able to offer 20% down payment, there’s no need for mortgage insurance. If you cannot offer 20%, mortgage insurance is required.
4. Your credit doesn’t have to be in tip-top shape to receive a mortgage. While most programs only allow a 620 or higher credit score, the Federal Housing Administration has loans available for those with credit scores as low as 580. Your credit score isn’t the determining factor, however, your credit history also comes into play.
5. Work on your credit score beforehand. Work on building your credit before sending in the application and this will help make things easier for you.
6. A down payment may not be required. While most loans require a 5%-20% down payment, there are options available through government mortgage programs that allow less than 5% down. FHA loans only ask for a 3.5% down payment if a 580 credit score is in existence. VA loans and USDA loans require absolutely no down payment at all.
7. Save ahead of time. Some loan companies may want to see that you’re able to cover several months’ worth of payments. It’s best to be prepared for future payments rather than just simply the first month or two. Lenders will certainly be hesitant to approve loans for someone who is about to go broke in order to get the mortgage. Having money in the bank may also help if your credit score isn’t as high as expected.
8. Shop around. Compare and contrast several different loan companies to find the right match for you. Chances are, a much better deal is out there somewhere waiting to be found.
9. Select the right loan for you. Whether it’s conventional, VA, FHA, or USDA, make sure the loan you’ve chosen is best suited to your financial needs.
10. Be prepared for paperwork. Have the following items with you in preparation for the loan – W2s (past and present), paycheck stubs, bank statements, tax returns from the past two years, list of debts and assets, receipts of rental payments, credit report, profit and loss statements, signed sales agreement, and any papers documenting additional income. If you’re in the middle of a divorce or have ever been bankrupt, additional paperwork may be required.