3 Things To Do Before Applying for a Mortgage

By Sabrina Karl

If you’re considering buying a new home, first ask yourself where you stand financially. How strong or shaky you are on three factors lenders care about — your credit score, cash on hand, and debt — will determine how favorable (or not) a mortgage you’ll be offered, or if you’re approved at all. So you may want to bolster these before applying.

Start by looking up your credit score, as well as that of anyone else who will be on the mortgage. Unless you’re already above 760, boosting your score can land you better rate offers from lenders.

Raising your score can generally be done by making all of your payments on time, paying down debt, and not opening any new cards or loans shortly before applying for a mortgage.

Reducing debt is doubly important because it also lowers your debt-to-income ratio. Lenders use this calculation to compare your income to your total debt (including car loans, student loans, credit cards, and any other debt), and the lower your monthly debt obligation, the stronger your application.

Although paying off a loan or card entirely is great, any debt reduction will improve your ratio. Consolidating multiple debts into one lower monthly payment can also help.

The third critical lender consideration is how much cash you have. In addition to wanting to see you’ll have funds in reserve after making your down payment, they’ll also look at how much you had two months ago, not just today. So save as much money as you possibly can, and don’t rely on a large cash gift from a relative right before applying.

When aiming to maximize the size and rate of your new mortgage, fortifying your credit score and savings, while reducing your debt, are surefire ways to put your best application forward.