Buying a home is said by many to be a very lengthy and strenuous process. It’s believed to be a difficult task because you'll need to have money saved up, find an excellent real estate agent, and a good location to buy the house. But before obtaining the keys to your dream home, you’ll need to take on a mortgage first before starting the homebuying process.  Applying for mortgage financing with a lender will provide the financial support you’ll need to buy a home. 

However, there are some essential aspects that you need to know when choosing a mortgage lender. This is because there are different providers that follow a variety of rules and loan terms that could be either work or be unfavorable to you. Fortunately, it's easier for homebuyers to narrow down on finding the right reputable lender from a large pool of home financing providers through mortgage origination data and other similar sources.  

Factors To Consider Before Submitting A Mortgage Application

There are some things you need to know before moving ahead with a mortgage application with the lender of your choice. These factors will increase your chances of qualifying for a loan and also finding the best. Here’s a list of some of them for you to learn about: 

1. Know Your Budget

Before qualifying for a loan, most lenders will first assess your debt-to-income ratio. This is the percentage of your monthly income that is used to pay off your existing debts. Ideally, only 20% of your monthly income should go to repaying debts before the mortgage application. Moreover, the total percentage of your income that covers all loans, including the mortgage loan, should be less than 40% thereafter. With that, they may be able to provide you the allowable loan amount. 

There are other expenses like monthly bills in the house that are believed to have a significant impact on your finances. So, even though lenders may not consider them, you don't want to be in a position where you're struggling with paying bills and mortgages and end up being house poor. It’s also important to factor these expenses plus the loan repayments into your total monthly expenses. 

Consequently, before applying for a mortgage, you need to consider what amount you want and how it’ll add to your debt-to-income ratio and total expenditure. A bad debt-to-income ratio may discourage lenders from granting you a home loan.

2. Determine The Down Payment Amount You Need

When applying for mortgages, many mortgage officers will require you to make a down payment of up to 20% though this rate will differ from one lender to another.  Therefore, you need to figure out the exact percentage of the total loan you need to pay as a down payment before you send an application. Bigger down payments could be beneficial in the long run as you'll pay fewer monthly premiums and avoid paying mortgage insurance.

Some lenders will allow you to pay a less down payment, but this will mean larger monthly repayments or more interest. Typically, if you need more money for your home, you'll be required to pay a larger down payment as lenders take on more financial risks letting you borrow. 

It’s advisable for you to have the down payment amount prepared beforehand as well as extra money for related expenses in the homebuying process. 

 3. Check Your Credit Status

Most lenders will always look into your credit score before giving you a loan. This is because your credit score determines your ability to repay your loans. Therefore, before applying for any loan, you need to be sure that your credit score is correct. Often, there are cases of mistakes on the credit report, and this could affect your qualification. You can order copies of your credit report from different credit bureaus and cross-check it to see if it’s correct. 

Credit scores can also indicate your status as a financially responsible adult. If your credit status is poor, you should close down any debts and keep up with any late payments. If it has any errors, you should contact the bureau to correct those errors for some of them may be holding up any increase in your credit score.

Furthermore, have a look at your credit history. Some lenders tend to not let other prospective borrowers obtain mortgage financing if they have a short credit history under their name. Thus, you shouldn’t close your credit card or any accounts right away after paying them off. This is because it’s said to shorten your credit history and may affect your credit score. 

4. Prepare To Get Pre-qualified 

Prequalification is an informal agreement between the lender and the borrower about the amount the latter is granted for their real estate purchase. It's usually free and doesn't require fact-checking of the information about your income and expenses. You can also get pre-qualified by different lenders to help you determine the amount range of what you can afford and different loan rates. 

Ideally, it’d be best if you get pre-qualified even before you start house hunting. This is because prequalification will also help you know what house prices to look for. 

Getting pre-qualified, however, doesn't mean that you automatically qualify for that loan amount. After your information is fact-checked and approved by the underwriter, only then you can be officially considered as a qualified borrower. Thus, it’s important for you to not miss out on key information about your finances. It's advisable to provide the correct and proper documents to not experience any hiccups in the process. 

Conclusion 

When applying for a mortgage of the amount that you want, being granted for one on the first attempt may be challenging and very difficult. Therefore, you need to understand all the factors that may increase the chances of being successful in the application. 

You’ll need to understand your budget and what amount of money your income will comfortably cater for in a loan. Also, you need to check, correct, and boost your credit score. Getting pre-qualified will significantly help you make better house buying decisions moving forward.