5 Things You Gotta Do Before You Even Apply for a Mortgage
Sure, you can just walk into a bank and apply for a mortgage. Just like how you can skip the studying and go with your gut on a bar exam.
But with one in eight mortgage applicants ending up in the reject pile (and whole bunch more flunking the bar), trust us: The no-prep route is not the way to go. Instead, start here.
Become one with your credit score
Don't just know it. Know what it means. A FICO score of 760 or higher is awesome, and can land you the lowest interest rates from lenders. (FICO isn't the only credit-scorer out there, by the by, but it's the most widely used.) A FICO below 620 will drop you off the radar of conventional lenders, but could still land you a Federal Housing Administration -- or FHA-backed -- loan.
The key here: Own your number. Love it. Babysit it. If it's top tier, keep it that way. Don't apply for a batch of credit cards, for instance, on your way to the mortgage lender. If your score is subpar, then accept a life of relatively high interest rates; set your sights on an FHA; or curb your home-buying ambitions until you improve your score.
Find a budget-bot. Then use it
You're already doing this for general life stuff, right? (RIGHT?) Great. Now make another one for the mortgage adventure. Start by asking yourself one question: How much home can you afford?
There are literally calculator tools to help you figure this out. Whether you do the math online or offline, know your monthly income; your current debt load; your savings stash; and your best guesses on property taxes and homeowners' insurance.
And spend a few minutes thinking about your ideal mortgage terms, too (i.e., Are you looking for a 15-year home loan, or a 30-year? At what interest rate?).
Crunch your numbers in advance, or the mortgage process will crunch you.
Forget French. Learn the language called “mortgage”
If you don’t know how to speak mortgage, it’s time to learn it. This means understanding what it means to be pre-qualified for a home loan versus being pre-approved. What it means to have a fixed-rate mortgage versus an adjustable-rate mortgage (ARM). Why points matter, and how PMI can impact your monthly payment. And, knowing what PMI stands for, for that matter. (It's private-mortgage insurance -- there, we saved you the click.)
We’ve got our own handy glossary to get you started. Or this 18-page glossary compiled by the Federal Trade Commission is a great place to start learning how to talk the talk.
Get ready, get set -- get your paperwork!
Chase Bank tries to break it to you gently: "When you apply for a loan," its website says, "you typically need to provide quite a bit of information."
How much is "quite a bit"? Tax returns, pay stubs and W-2 forms, for starters. And not just one year's worth, but a couple years' worth. And not just for you, but your man, your mom, your mom’s man -- anyone who's going to be co-signing the mortgage.
The list of requirements will vary: Chase, for instance, wants a signed Internal Revenue Service Form 4506-T or 4506T-EZ. (It's a request for your income-tax transcripts.) If you’re a renter, it’s best to have 12 months of canceled rent checks handy. Either way, it’s best to have a good meditation app handy on your phone; nobody wants to end up in a paperwork anxiety spiral.
So, find your prospective lender's requirements, and commence the paper chase.
Do. Not. Settle.
Americans may be savvy bargain-hunters when it comes to, say, shoes, but not so much when it comes to the biggest potential purchase of our lives. Way more than half of all borrowers research two or fewer lenders before signing on the dotted line; more than a third look can only be bothered with one.
And fewer than 10 percent used this thing called the internet to find their home-loan provider.
Be better than that. Put in the work, and find the lender who'll give you the best deal. Remember: Even though you're the one who'll be doing the applying, you're the boss.