Being approved for a home loan can often be the deciding factor on whether you are able to purchase a home. If you are in the market for a home, there are several actions which are critical in the mortgage application process, as well as several things which you should refrain from doing to give yourself the best chance of approval for a mortgage.
Do's and Don'ts of the Mortgage Application Process
- DO take the time to get pre-approved for a loan: a loan pre-approval will give you an idea of how much a bank or lender will loan you for a mortgage. If you don't know how large of a loan you are able to get, then you won't know a price range of homes which you can afford.
- DO pay down debt as much as you can: most lenders have a limit on the debt-to-income ratio that you are allowed to have when being approved for a mortgage. If you are able to pay off or pay down car loans, credit card balances, or other forms of debt, then your chances of being approved for a mortgage will increase.
- DO keep your paperwork in order: your lender will inevitably ask for documents such as paychecks, tax returns, and other financial records. The more organized you are, the easier it will be to provide your lender with this information.
- DO set a budget and stick to it: if you can only afford a $300,000 home, don't waste your (or your realtor's) time looking at a $350,000 home. If you get your hopes up on a home that you can't afford, the homebuying process can quickly become a downer.
- DO keep records of where money comes from: if you deposit a large sum of money into your bank account, you are going to need to be able to prove that it came from a legitimate source. Be sure to keep records of where your funds are coming from.
- DON'T take your loan amount at face value: just because you are approved for a $400,000 loan does not mean that you can shop for a $400,000 house. You will need to take into account additional costs such as property taxes, homeowner's insurance, homeowner's association dues, and possibly private mortgage insurance. Don't get your hopes up on a home that you can't reasonably afford.
- DON'T miss any payments: now is not the time to forget to make a credit card payment or slack on your bills. A missed payment can reflect negatively on your credit score, which can jeopardize your likelihood of being approved for a mortgage.
- DON'T make any large purchases: anything that you need to purchase can wait until after you close on your home. Making a large purchase can put your debt-to-income ratio over the acceptable limit, which could compromise your loan.
In the Market for a Home? We Can Help
If you have decided to purchase a home, the Law Office of Melvin Monachan is here to help you from pre-contract to post-closing. To learn more about the closing process or to schedule your closing today, fill out an online contact form or call (347) 620-0565 today.