• Joe Gilani

How to Prepare for the Mortgage Application Process

Updated: Sep 2




You hear ‘mortgage application’ and you cringe. It’s too overwhelming, right?


What if it’s not as bad as you think? The process is straightforward, and if you’ve prepared your finances and qualifying factors, it should go off without a hitch.


Before you apply for a mortgage, let’s look at how you can prepare yourself.

Check your Credit


Lenders check your credit first – it's their first impression of your financial capabilities. Check your credit before they do so you have time to fix any issues. Pull your free credit report from all three bureaus here. All consumers have free weekly access to these reports until April 2021.


Go over the credit report and look for:


  • Errors that need correcting – Contact the reporting bureau to dispute the error

  • Late payments – Bring all payments current to improve your credit score

  • Overextended credit – Bring your credit card balances down to 30 percent of your credit line

  • Unpaid collections – Get current on all collections or at least set up a payment arrangement

  • Accounts that aren’t yours – Contact the credit bureaus and creditors about the issue, especially if you suspect fraud


It takes a while for credit scores to change, so do this step as early as possible for the best results.

Save for a Down Payment


You’ll need a down payment unless you’re applying for the VA or USDA program, which are for select borrowers (veterans and low-income families respectively).


Start saving money as early as you can. FHA loans require 3.5 percent down and conventional loans require as little as 3 – 5 percent down. If you're buying a co-op you'll need as much as 20 percent and a condo would be 10 percent. You’ll also pay closing costs, which are between 2 – 5 percent of your new home’s purchase price.


Lenders verify your bank accounts/assets to make sure they are your funds and not borrowed. Saving money as early as possible increases your chances of having enough for a decent down payment.

Pay off Debt


Next to your credit score, your debt-to-income ratio is the next most important factor. The fewer debts you have, the more likely lenders are to approve your application.


Ideally, you should have a 36 percent total debt-to-income ratio, but many programs allow up to a 43 percent DTI. As much as you can, pay down your debts including your credit cards and installment loans. Compare your outstanding bills to your income before taxes. If they take up more than 43 percent of your income, pay your debt down or off before applying.

Get your Income in Order


Lenders need proof of your income. If you work for someone and earn a salary or hourly wage, you’ll need:


  • Pay stubs covering the last 30 days

  • 2 years of W-2s


If you own a business, work as an independent contractor, or earn more than 25 percent of your income in commission you’ll need:


  • 2 years of tax returns with all schedules

  • Current YTD Profit & Loss Statement


Ideally, lenders want a 2-year solid employment history. Even if you changed jobs within that time, if it was within the same industry and/or you have the training to change industries, it may count.

Know your Options


An informed borrower is a successful borrower. Know your options. Will you apply for government-backed financing, such as an FHA loan, or conventional financing? Know the lender’s requirements and work toward achieving them in the months leading up to your mortgage application.


Get pre-qualified so you have an idea of how much you can afford and what the payment may look like. This isn’t a guarantee of approval and holds no weight with sellers, but it’s a good first step so you know where you stand.

Talk about fixed-rate and adjustable-rate loans, as well as the term length, whether 15, 20, 25, or 30 years. Have an idea of what works for your budget and future goals. Many buyers look only at today’s finances, forgetting that a home investment is one you make for the next 30 years.

Prepare yourself for the Mortgage Application


Preparing for the mortgage application process is one of the best ways to ensure you get the loan approval you need. The earlier you prepare your finances, the better terms you’ll get when you’re ready to buy a home.


Take the stress out of applying for a mortgage, by focusing on your credit score, debts, savings for a down payment as early as you can. The higher your credit score, the more money you have available to put down, and the fewer debts, the easier it is to qualify for the most attractive financing available today.