It’s an exciting time when you are ready to buy your first home (and an expensive one). Unless you have the cash to buy a house outright, you’re likely going to be taking out a mortgage to finance your purchase.

Applying for a mortgage doesn’t have to be scary—just follow these steps!

Check Your Credit

a man checking his credit

Before applying for your mortgage, you’ll want to check out your credit reports. Your credit rating will play a significant part in getting approved for a home loan and getting a good deal. You can start by pulling your reports from the three major credit bureaus (TransUnion, Experian, and Equifax). This website is the only one that the federal government authorized to provide you with a free credit report once a year.

Related: 580 Credit Score Home Loans

After you get your report, you’ll want to review them and check for any errors. Double-check your personal information and the accounts listed on the credit report to make sure everything is accurate. If you happen to find any errors, you can dispute them with the credit bureau, and, by law, they’ll respond within 30 days.

Improve Your Credit

If your credit is in excellent shape already, great! You can skip this step. If not, we’ll go over some ways you can improve it. Lenders usually like to see a credit score of over 620, but you can get some government-backed loans approved with lower scores. The higher your score, the better loan you can get.

Payment history, which is the highest weighted factor for your credit score, accounts for 35% of it. The best way to enhance your score is to make payments on your debt in full and on time. How much you owe compared to the amount of credit you received contributes to 30% of your score—you’ll want to keep your debts as low as you can.

Another thing you can do for your credit when trying to get a mortgage loan is to avoid opening any new lines of credit or making large purchases on credit for a few months prior to applying for a mortgage—this affects the length of your credit history and number of inquiries.

Decide on a Loan

a person deciding on their mortgage loan

Next, you’ll want to evaluate the loan options you have and determine which one suits your situation the best. You should consider:

Government-backed vs. Conventional

The most common types of mortgages are government-backed loans and conventional loans. Government-backed loans are the best option if your credit isn’t in the best shape or you don’t have enough saved for a large down payment. These loans, like FHA and VA loans, still go through individual lenders, but they are insured by the government. That makes them less risky for lenders, allowing you to get more flexible terms.

Conventional loans have more strict eligibility requirements and require higher down payments, and they are provided by online lenders, credit unions, and private banks.

Variable vs. Fixed Interest Rates

Another big decision you’ll make regarding your mortgage loan is choosing a variable or fixed interest rate. Variable rates are usually less expensive during the first few years of your mortgage, but they will change multiple times throughout the loan’s term, depending on the current market rate. That means, with variable rates, your interest payment could increase significantly over the years.

Fixed-rate loans are typically a safe bet—you’ll know exactly how much your payments will be each month.

Short vs. Long Term

The length of your mortgage loan significantly impacts your overall costs. Shorter loans (15-20 years) allow you to pay off the loan much faster and save on interest charges, but your monthly payments will be higher.

Long term-loans (30 years) give you more affordable monthly payments, and they usually allow you to borrow more. But, increasing the time you spend paying back the loan also increases how much you will have to pay in interest.

Related: What to Know About Hybrid Loans

Gather Your Paperwork

Once you have your finances in good shape, an idea of which loan you want, and you know what you’ll be able to borrow, it’s time to get everything else ready. Lenders require you to have a good deal of documentation as part of the approval process—here’s what you’ll need:

  • Income verification: you’ll need to show the lender that you can support the mortgage payments with your income. They’ll likely want you to bring previous tax returns, W-2s, and pay stubs to verify this. Self-employed individuals will have to provide profit and loss statements or 1099s from the past few years.
  • Proof of assets: providing proof of other assets can help you secure your mortgage loan. This includes things like bank statements for checking, retirement, and brokerage accounts.
  • List of liabilities: you might also have to provide documents showing your outstanding debts, like student loans and credit card statements.
  • Additional paperwork: your lender may require additional documentation—make sure to talk with them to find out everything you’ll need to bring!

Related: Beginner House Buying Checklist

Find the Best Mortgage Rates

Now, it’s time to secure your loan! You’re probably excited, but it’s important to look around for the best rates—choosing the right lender can save you a lot of money over your loan’s life.

The interest rates you agree on for your loan have a major impact on your total cost. Even fractions of percentages add up over the years. Other factors to consider are closing costs, mortgage insurance, origination fees, discount points, and other expenses that can tack on costs to your loan—these fees usually get rolled into your balance, and you’ll end up paying interest on them also.

Are you searching for the best mortgage lenders to help you buy your home? Get in touch with the loan brothers at Mares Mortgage—we’re here to help!

Get Pre-Approved

new home owners

Buying a home for the first time is exciting, but it can also be stressful. You can help remove some of that stress by getting pre-approved for a mortgage loan. When you get pre-approved, your lender will look at your income, credit score, and assets to estimate how much you can borrow. While this doesn’t guarantee you’ll have the money in hand when it’s time to purchase a house, it can give you a strong chance to secure financing fast when you find your dream home.

Do you want to get pre-approved for a mortgage loan? Get your pre-approval in one day with Mares Mortgage!