How to Apply for Mortgage: Checklist

When you apply for a mortgage, it can be stressful, especially when you are doing it for the first time and have absolutely no experience. Knowing what steps are needed to be taken can help simplify the process.

The good news is that you can follow our mortgage checklist to set yourself up for success.

Think about whether you are ready for a mortgage

If you don’t have enough cash saved to buy a house, you need to make a plan to generate that money. Apply for a mortgage once you have a steady job and a steady income.

If you’ve recently changed jobs it may be a good idea to hold off until you’ve been in the role for at least six months. It also helps to have a good idea of the housing industry and the amount of money you need to save.

Make sure to save a 10% deposit. If you don’t want to use private mortgage insurance (PMI), you can save a 20% deposit, which can run several hundred a month.

Calculate your income and your monthly debt obligations

Calculate your monthly income and debt payments. There are several online calculators available to assist you in estimating your debt-to-income ratio.

In the case of self-employment or irregular income, expect the underwriting procedure to be slightly more involved. Getting approved for a mortgage plan of your choice is all about staying within certain ratios that lenders will use to analyze how much you can afford and decide on a suitable mortgage accordingly.

Check your credit history

Checking your credit is an important part of applying for a mortgage. The lender will ask your permission to evaluate your credit history.

Before applying for a loan, make sure you understand all the details regarding your credit report. You can receive a free copy of the credit report and your credit score in about ten minutes.

Try using Credit Sesame, a service that offers your free credit score and analysis.

Understand the local housing market

In some cases, the type of loan you can get depends on the market you’re buying from and the type of house you’re looking for. There can be major differences between states and even regions.

Real estate professionals at Falaya can help you understand the local mortgage standards and can also keep you away from certain types of properties that you shouldn’t go for.

Improve Your Credit Score

If your credit score is not in perfect shape, you should spend some time improving it.

One of the best ways to improve your credit score is to pay all debts on time and in full.

Payment history – the most important factor in assessing your affordability – counts for 35% of your credit score. The amount of debt you owe in relation to the total amount of credit extended to you contributes to another 30% of your score, so it’s best to keep your debt as low as possible.

Finally, before you apply for a mortgage, you should not make any major credit purchases or open new lines of credit for at least a few months, as this will negatively impact the average length of your credit history and damage your credit score.

Pay off debt

You can improve your credit score by paying regular loans, correcting any incorrect information and reducing your credit card balance.

If possible, don’t open or close credit accounts for a few months before applying for a mortgage. Closing credit cards can actually hurt your credit.

Decide What Type of Loan You Want

If you’re certain that you’re ready to buy a house, you should start off by finding the right mortgage deal for yourself. Before you apply for a mortgage, consider the one that will best work for you and how long a deal you should go for. Talk with mortgage providers about the ways that can help you save a little money in the future.

Get your documents in order

You will be asked to provide your documents once you apply for a mortgage.

The list below will provide details about all the essential documents required to be submitted. Your lender will also help you figure out which documents are needed and also help you prioritize which items to send in first.

Tax returns

You may need to sign Form 4506-T, which allows the lender to request a copy of the IRS tax return. Lenders usually want to have a look at one to two years’ worth of tax returns. This is to ensure that your annual income matches the declared income via the pay stubs.

Photo ID

You may be asked to provide a photo ID, such as a passport, a driver’s license, or an invoice statement.

This is just to make sure that you are who you’re claiming to be.

Proof of assets

Lenders will want to make sure you have the assets to be financially sound after paying the down payment and closing costs associated with the mortgage. On your mortgage application, you will write down all monthly debt payments to be made (such as student loans, auto loans, credit card bills) and your assets (such as bank accounts).

Proof of income

If you are employed:

You need P60 forms from the last two years and your last 3 payslips.

If you are self-employed: 

You need your tax return statements which are verified by a professional accountant or advisor. You may be asked about your plans and future earning projections.

If irregular income: 

You need your employer’s statement about any irregular or unsecured income (such as maternal salary or car allowance).

Retirement income:

 Such as pensions and annuities.

Income from investments and rental property:

Many lenders will ask for proof that you can pay on time for buyers who don’t yet have a home.

They can ask for a year’s worth of canceled rent checks (make sure that your homeowner has cashed).

Other income:

Child and spousal maintenance payments, government benefits, second job or self-employment, tax credits (note that not all lenders consider tax credits as income).

Consider Mortgage Pre-approval

When getting pre-approved, a lender will take a look at personal details such as your credit score, income, and assets to ballpark how much you can borrow. 

This gives you a competitive advantage because the seller knows that you are very likely to secure financing. In this way, instead of deciding which house to buy and then waiting anxiously to get your mortgage approved, you can start house hunting with a more precise figure in mind.

Fill out a mortgage application

Once your offer on a house has been accepted, you must formally file a mortgage application with the lender. If you’ve hired a mortgage broker, he will handle this for you. The mortgage lender assesses the property you’re interested in buying. This confirms that the property is worth the price you want to pay for it. The lender also thoroughly checks the documents you have provided and your credit report. This evaluation will appear on your credit file. 

Generally, you should expect to get your mortgage offer within 18 to 40 days after the application is completed. Once you have received a formal mortgage offer, your conveyancer will ensure that the mortgage funds are transferred from the mortgage lender to your seller on the day of completion.

Close on your home

Once your loan is approved and your home inspection is complete, your lender will set a closing date and let you know exactly how much money you’ll need to bring to your closing.

Now it’s finally time to prepare for the closing day. 

Get a cashier’s check for your down payment, read all the documents you receive, and don’t forget to ask any questions you may have about the terms of the agreement.