Thinking of buying a house? Here’s what you need to know before applying for a mortgage.
Buying a home is one of the biggest financial decisions you’ll make, and getting approved for a mortgage isn’t always simple. So, rather than jumping into the process, let’s look at some steps that can make the experience easier and boost your chances of approval. Having things in order beforehand will help you avoid unexpected headaches down the road and make your home-buying journey smoother.
1. Start by Building Your Credit
Think of your credit score as your financial reputation—it’s one of the first things lenders look at. A high credit score tells lenders you’re responsible with money, which increases your chances of approval and could even help you get a better interest rate. But if your score needs some work, there are steps you can take to improve it.
First, take a close look at your credit report and dispute any errors. You don’t want mistakes from years ago impacting your chances today. Next, focus on reducing outstanding debts, especially credit card balances, as much as possible. Be consistent with paying your bills on time—this isn’t a “fix-it-last-minute” approach; it’s about showing lenders that you handle finances well over time.
Ask yourself: Is my credit score where it needs to be? Have I taken steps to address any issues that could hold me back?
2. Avoid Big Changes Before Applying
Once you start thinking seriously about a mortgage, it’s best to keep your financial profile as steady as possible. Lenders value stability, so avoid making large or unusual transactions, such as closing old credit accounts or taking out new loans. Even depositing large sums of money out of the blue can make lenders pause—they may wonder if that’s a one-time gift or a regular source of income.
Changing jobs right before applying for a mortgage can also impact your application. Lenders like to see at least a couple of years of stable employment. If you’re thinking of making a change, ask yourself: Can it wait until after the home purchase? A consistent record will reassure lenders that you’re a low-risk borrower.
Ask yourself: Am I keeping my spending and finances steady? Can any changes wait until after I’ve secured my loan?
3. Find the Right Loan Type for You
Mortgages aren’t one-size-fits-all. Take some time to explore different loan types, like fixed-rate, adjustable-rate, and government-backed loans like FHA or VA. Each has its pros and cons, and the right choice depends on factors like your budget, future plans, and tolerance for risk. Going in with a clear understanding of your options can make the process smoother and help you make a decision that truly fits your situation.
Think about: What are my long-term goals? Do I prefer the predictability of a fixed-rate loan, or could I benefit from an adjustable-rate option?
4. Gather Essential Documents Early
When you’re ready to approach lenders, they’ll ask for a range of documents to verify your financial standing. It’s smart to gather these in advance, so you aren’t scrambling last minute. Here’s what you’ll likely need:
- Three months of bank statements
- The last two years of tax records
- One month of pay stubs
- Documentation of any outside income sources
- Proof of assets (for your down payment and closing costs)
- Photo ID (usually a driver’s license)
- Your social security number
Having everything on hand will make you look organized and ready to go, which lenders appreciate. It also gives you peace of mind, knowing you’re prepared for this part of the process.
5. Get Real About Your Budget
A mortgage lender will look at your debt-to-income ratio, which compares your monthly debt payments to your income. This ratio helps them decide how much you can borrow. But beyond that, you should also consider what’s manageable for you. Just because you qualify for a large loan doesn’t mean you want to stretch yourself thin every month. Think about your monthly spending and future expenses to get a clear idea of what’s realistic for your budget.
Ask yourself: How much am I comfortable paying each month? Does my debt-to-income ratio align with my goals?
6. Have an Honest Talk with Your Partner
If you’re buying a house with someone else, their financial history matters too. Lenders will look at both of your credit scores, income levels, and debt-to-income ratios. This means that if one of you has a lower score or higher debt, it could impact your application. It might be worth working on these issues together before applying—getting on the same page now can save a lot of stress later.
Think about: Are there any steps my partner and I need to take to be financially ready?
7. Ready for Pre-Approval? Here’s What You Need to Know
Once you’ve prepared and feel confident, you’re ready for the next step: pre-approval. Pre-approval gives you an idea of how much a lender is willing to lend and can show sellers that you’re serious. But there are a few things to keep in mind:
Pre-approvals have a time limit. Most are good for about 90 days. If your search takes longer, you may need to get pre-approved again.
It’s not a final commitment. Pre-approval doesn’t guarantee you’ll get the loan. Your financial situation will still be reviewed before the final approval, so keep everything stable.
You’re free to shop around. Even if you’re pre-approved with one lender, you can still explore other options. If you find better terms elsewhere, it might be worth the extra paperwork to switch.
Ask yourself: Am I ready to move forward with the pre-approval process? Have I done everything I can to put myself in the best position?
Take It Step by Step
For most people, a mortgage is a must for buying a home, and taking the right steps up front can make all the difference. At Nuvision Credit Union, we’re here to help you through the process, making it as clear and stress-free as possible. By following these steps, you’ll be setting yourself up for a smooth mortgage approval and a successful home-buying experience.
Buying a home is a big milestone—Nuvision is ready to help you get there.
