10/28/2020: Getting qualified: the do’s and don’ts of the mortgage application process
Our job here at Citizens Bank is to help get you financially prepared for moving into the house of your dreams. The first step to doing so is to make sure you qualify for a mortgage deal that fits your family’s income and lifestyle.
It’s true–we’ve written on this subject in more than a blog or two but that’s only because of how important it is to prepare for your home loan application. Making sure you get the deal you deserve is the key to comfortably affording the house of your dreams.
What’s involved in the mortgage loan qualification process?
Though the process of getting qualified for a mortgage loan seems overwhelming, in general, it involves just a handful of financial inquiries:
- Income Review
- Credit History
- Employment History
- Debt-to-Income Ratio
- The type of loan you’re applying for
Banks want to see that you have stable employment, experience with credit and paying bills on time, and that you live within your means. It may seem overwhelming at first, but Citizens Bank mortgage lenders are ready to walk you through the process and ease your worries.
To get you started, here are the do’s of the mortgage application process.
DO get pre-approved for a mortgage
Getting pre-approved for a mortgage isn’t exactly what it sounds like. That is, you aren’t getting an approval so much as an estimate for what mortgage you will most likely qualify for.
Think of a pre-approval as the guiding light for your mortgage process. The pre-approval will help determine your mortgage options, based on what sort of payment structure you can manage. Furthermore, in the event that the home of your desire receives multiple offers, yours is more likely to be accepted if you are pre-approved.
DO keep track of all documents related to the mortgage process
Remember the five general aspects of the mortgage loan process? Well, for each of them, you’ll be presenting documentation to prove their validity.
For example, you need pay stubs to prove your income. You need reference contacts and past pay stubs to prove your past employment history.
Make sure you’re prepared to present the necessary documentation when the time comes to do so. It will not only save you trouble but also prove to your lender that you’re organized and capable of handling the responsibility of owning a home and a mortgage loan.
DO pay off debt and pay down on outstanding credit
Much of the mortgage qualification process involves reviewing your debt and credit. Though it looks different for everyone, debit and credit boil down to a snapshot of your ability to pay bills on time and live within your means.
The best time to get your credit score up and your debt paid down is before you start thinking about buying a home. Of course, life throws us all sorts of challenges, and very few of us have impeccable finances–let alone foresight. The good news is that, when you do make the decision to apply for a mortgage loan, we can still improve your credit score and debt levels.
DO create a budget that conforms to life with a mortgage payment
Nearly all homes are still owned in part by banks–which is great, because it’s what allows everyone to achieve the American dream without actually possessing the cash necessary to buy a home outright! Still, lenders want to see responsibility. When qualifying for a mortgage, it’s more important than ever to get serious about your budget.
Owning a home isn’t merely paying your mortgage on time. It’s also paying homeowner’s insurance, property taxes, unforeseeable expenses such as damages to the property or a new addition to the family, and potentially, homeowners association dues.
Preparing a budget prior to applying for your mortgage loan means leaving room for these expenses, which will go a long way to instilling confidence in your lender.
The DON’Ts of applying for a mortgage loan
Okay, now that we’ve gone through what you should do when applying for a mortgage loan, let’s go through something a little more elusive–what you shouldn’t do.
DON’T close any credit accounts!
This is one of the biggest mistakes we see new applicants make. It seems like common sense–wouldn’t we want to shut down any unused credit options? Won’t they come off as abandoned responsibilities?
On the contrary, the more credit accounts you have open, the better your credit score–granted you’re making payments on time. And while it’s even better if these credit accounts are being used, accounts with $0 balances still help our credit score.
DON’T take on more debt prior to applying for a mortgage loan
Life can get extremely busy right around the time you’re considering moving into a new home. Careers are getting ramped up, things need to be bought for the baby, or your thriving young business needs a little more cash to keep growing.
No matter your circumstances, it’s imperative that you do everything you can to avoid debt prior to getting qualified for your mortgage loan. As mentioned before, your outstanding debt and debt to equity ratio are crucial to qualifying for the best mortgage loan possible.
DON’T make any big financial decisions before getting approved for your mortgage loan
Taking out another loan is one thing. Changing careers is quite another. Or deciding to finally take the family overseas for the first time. Or buying your significant other a $5,000 ring. Or putting the down payment on that new car you’ve been eyeing. There are countless seemingly necessary expenses that conflict with the timing of buying a new home.
This one can’t be stressed enough. As important as it is to maintain your credit payments and income stability, it’s equally important not to disrupt the application process by throwing a wrench into your finances, and coming off as impulsive.
Do yourself a favor and hold the course–at least until you’ve moved in!
DON’T take on a deferred payment plan
Heaven forbid you choose to buy that ring–please, just don’t put it on layaway!
Deferred payment plans will wreak havoc on your credit score. Lenders want to see that you have the ability to pay for things up front as proof that you’re living within your means. If you have to enter a deferred payment plan to afford something, that thing isn’t worth buying during the mortgage application process.
Make sure you consult these tips prior to getting qualified for your mortgage loan
We mentioned earlier that the mortgage loan qualification process can be stressful. You want to make sure you have everything in order. Also, it just so happens that life is overly busy around the time you’re moving into a new home. Careers are booming, babies are being born, and life goes on despite the impending move.
By making a checklist and sticking to the plan, you can save yourself a world of trouble when it comes time to apply for a mortgage loan.
And remember, your lender at Citizens Bank is always available to consult with you on any questions and concerns.
Learn more about buying your first home with Citizens Bank
Citizens Bank is the oldest, continuously operating minority-owned bank in the United States. Since 1904, we’ve been serving the people of Nashville and Memphis, TN. To learn more about qualifying for your mortgage loan, give us a call at (855) 788-4465. For more information, visit www.bankcbn.com or find us on Facebook, Instagram, and Twitter.