8 Steps to Take Before Applying for a Mortgage

1. Check Your Credit Score
   Your credit score is crucial for securing a home loan and addressing any issues can take time, so it’s best not to wait until the last moment. You can access your credit score and a detailed report for free through various apps or through your credit card provider, which typically offers one free report per year. Knowing your score can help you achieve better mortgage rates, so consider ways to improve it before applying.

2. Reduce Your Debts
   Lowering your debts is essential since lenders evaluate your current debt load relative to your credit limits before deciding your loan amount. Reducing your debt also enables you to allocate more funds for the down payment or qualify for a higher mortgage easily.

3. Know What You Need
   To ensure your mortgage application is processed smoothly, you’ll need a variety of documents. This typically includes pay stubs or statements for the last month, tax returns for the past two years, and three months of bank statements. Additionally, be prepared to provide explanations for any unusually large transactions that appear in your financial history.

4. Understand What You Can Afford
   Many lenders follow the 28/36 rule, which indicates your mortgage payment should not exceed 28 percent of your gross income and that your total revolving debts, which include your new mortgage, car loans, credit cards, and other financial commitments, should be limited to 36 percent of your gross income. While this guideline isn’t universal, it’s a useful benchmark.

5. Know Your Loan Types
   A variety of loan options exist, with a fixed-rate 30-year loan being one of the most popular. Other choices include loans lasting 5, 10, 15, or 20 years, and adjustable-rate mortgages are also available. Familiarize yourself with the various options to find the best fit for your circumstances.

6. Learn How Interest Rates Work
   At a certain point during the mortgage process, you’ll need to lock in your interest rate. Understand how your mortgage rate affects your monthly payments, total mortgage cost, and repayment terms. Be aware that adjustable rates are usually triggered after a set period, typically five years, so know the potential changes in your rate and timing.

7. Spend Less
   Cutting back on expenses has several advantages. It prevents you from accumulating additional debt and helps you get accustomed to managing a mortgage payment within your budget.

8. Know the Market
   When searching for a home and a mortgage, it’s crucial to understand the pricing trends in different neighborhoods and communities. Avoid fixating on a specific area only to realize it may be beyond your financial reach.

At Guaranty Bank & Trust, we provide our clients with guidance on the mortgage journey and maintain a strong commitment to exceptional service. Meet our team and reach out to one of our mortgage originators for more information.