Mortgage – The First Steps to Take

Alright, you have decided you want to apply for a mortgage. Whether it is a refinance or a home loan for a purchase there are certain things they both have in common.

The first step for the lender after they receive your application is to examine your credit report. You can almost think of it as a resume. It shows your past experience, it shows where you have been and what you have been doing. In the lenders mind your past actions are a strong indication of your future behavior. It is very important that you take a look at your credit reports and correct any errors that may be on them. Some estimates indicate that up to 40% of all credit reports contain mistakes. It would be a tragedy to be denied a mortgage based on erroneous data.

There are three credit bureaus. Equifax, Transunion and Experian. They all have slightly different formulas for determining your credit score and you will need to check all three for errors. If you find that there are mistakes it can take some time and effort on your part to straighten it out, but, it is important and worth the effort.

The lenders will also be looking at the outstanding credit that you already have. Part of the formula for getting the best rate on your mortgage is to pay down these balances before you apply. When they are looking at your credit the mortgage company will be paying attention to your credit card balances. If your credit cards are at or near their limit and you are making minimum payments they will see that as someone who is living to close to the edge and is in danger of falling behind.

Another note on credit cards. The lenders will consider it to be a red flag if you are applying for a lot of new credit cards or if you close down accounts before applying. Pay your balances down, don’t close the accounts and don’t apply for new cards.

It may seem a little obvious but the lenders are also looking for a steady income. They tend to reward people who have been in their jobs for a long time with home loans at the best rate. If you are thinking about changing jobs or careers it might be a good idea to wait until you are settled into your new home.

Applying for a mortgage can be a stressful process, but if you prepare and try to understand what the lender is looking for it can go a lot smoother. Before refinancing or getting a mortgage on a new house do your homework the home loan application becomes the easy part.