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Before applying for a mortgage loan, it is necessary that you do your homework very well. You should endeavour to clean your house before inviting people to come for a visit. Today, I choose to talk in parable but I will explain myself for the benefit of those who don’t understand me. When I say that you should clean your house before you start inviting people for a visit; that does not mean that you are actually inviting people to come and visit you. You understand that when you invite people to visit you, they will look around your home, furniture, curtains and your environment in general. If the place is unkempt and smelling, your visitors may not want to stay long. But if your place is clean, well-organized with pleasant music to entertain your guests, they will feel relaxed. They may even stay longer than they planned. I just use this as an analogy as the same applies to when applying for a mortgage loan.

When you apply for a mortgage, I know that you don’t want your application to be rejected. However, the truth is that, not all applications for mortgage are approved. If you don’t meet the mortgage requirements before you apply, there is every possibility that your application will be denied, the number of times you apply notwithstanding. Therefore, before you jump at applying for a mortgage loan, it will be to your advantage to do the first things first. Among those things that you need to do that will help you are the following:

Save enough money: Before applying for a mortgage loan, it is important that you save enough money. If you are applying for a traditional mortgage, you will be required to make 20 per cent down payment. How much the 20 per cent down payment will amount to depends on the value of the home you want to buy. For example, if the value of the house is $260,000, you will need to make down payment of $52,000. But if you are buying a home that is valued $200,000, you will only need to pay $40,000. If you don’t have such amount, you may consider FHA loan as it only requires down payment of 3.5% or 10% depending on your credit score. Apart from the initial down payment, you will also need to pay closing costs before your loan can be released to you. First time homebuyers usually wrongfully assume that all they need to do is just to make the down payment. You will need to pay closing costs which cover origination fee, appraisal fee, attorney fee, courier fee, origination fee and inspection fee as well. Just to mention but few. If you are getting FHA loan, you will still need to pay the upfront mortgage insurance premium.  By the time you add all these closing costs together, it will be around 2 to 5 per cent of the value of the purchase price of the house. Also, you should remember that you will still need to cover your moving costs. However, you can ask someone to pay the closing costs for you as long the money is not a loan that you will need to repay. You may need to give evidence that the money is a gift and not a loan.

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Create a budget: If you don’t have budget yet, you may need to develop one now. You should create a budget that highlight your income and expenses for each month. It is good that you operate the budget for some months so as to ensure that you actually capture all the necessary expenses. This time around, you should ensure that the budget will be able to accommodate your monthly mortgage payment. Your monthly mortgage payment is must-do for you if you don’t want to lose your home to foreclosure. As a general rule, it is expected that your monthly payment should not exceed twenty eight percent of your monthly income. If your budget will not be able to accommodate the monthly mortgage payment, it is a clear indication that you will not be able to pay for the mortgage if you get it.

Check your credit score: As far as mortgage is concern, your credit score is very important except you are applying for VA loan which does not require checking of the credit score of the applicants. But if you are not a veteran or an eligible applicant, you can’t get VA loan. If your credit score is below the required benchmark, your application will not be considered. Besides, if your credit is low, you may be charged a very high interest rate. A difference of 0.50 per cent increase in interest rate may turn to be a very significant amount for a 30 years fixed rate mortgage. For example, if you use mortgage calculator to calculate the interest payable on 30 years fixed rate mortgage of $250,000 at 4.5 per cent interest rate, the total interest will be $206,016.78. But if the interest rate is increased to 5 per cent, you will end up paying $233,139.46 as interest on the loan over the same period. This is an increase of $27,122.68. This is high of course. So, if you can save $27,122.68 on interest, I think it is worthwhile. If you check your credit score and you discover that it is not at the level that will make you enjoy cheaper interest rate, you should start building it now.

Obtain your free credit report: Do you know that you are entitled to one free credit report from each of the three major credit bureaus every year? You can apply for your free credit report through AnnualCreditReport.Com. They will help you obtain your credit report from Experian, TransUnion and Equifax. You can decide to get the three credit report at the same time or you may choose to get them at different time. Getting your credit report from the three credit bureaus at the same time will allow you to compare the reports. You may discover that there are certain information that don’t appear in all the three reports. This is possible as your creditors may report your transactions to one or two credit rating agencies only. They are not mandated to report your credit transactions to all the three credit bureaus. Obtaining your credit report will allow you check for errors. If you discover any error in your report, you will need to dispute it and follow it through to be sure that the errors are corrected. This alone can boost your credit score by some few points.

Read Also: Credit Score: How to improve credit score

Pay down your debts: If you have existing debts, you should try as much as possible to reduce the outstanding amount to manageable level. Most banks will prefer somebody with debt to income ratio that is less than 35 per cent. This will show that you will be able to make your monthly mortgage payment even if your situation changes. When applying for a mortgage loan, you will need to provide proof of your income including your bank statements for the past months. For this reason, it is good that you keep proper records of your income. It will be advantageous if all your income are deposited into your bank account so that they can reflect in your bank statement. However, bank will be more interested in your recurring income rather than a one off large amount.

Become Conversant with your local housing market: You should develop interest in knowing what is going on around you as regard to the housing market. You should know what the Interest rate trend is per time. If the interest rate is too high, you may need to wait for the period that the interest rate will be a bit low so that you can save some bucks on interest payment. Also, if the interest rate is low, it may be the right time to quickly lock in the rate in a fixed rate mortgage.

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