Financing a new home can be stressful, especially if you’ve never applied for a mortgage loan before. You can reduce the worry by becoming informed about the home financing process, what you have to do, and the choices you have available to you.

How the Process Works

In a mortgage application, you will disclose your identification information, employment history, financial assets and debts, and any other real property you own. You’ll give permission for the mortgage loan company to conduct a credit check and background check on you and any co-applicants (such as a spouse). You may also have to supply income tax statements and other documents.

Your application will be submitted to an underwriter who will examine your capability to pay back the loan. The property you’re buying will also undergo appraisal. Finally, if all goes well, your application will be approved and cleared for closing.

Consider the State of Your Finances

Before you apply for a mortgage, you should examine your finances and clear up anything that could delay the approval process or indicate a credit risk. Pay down any debt that you can, especially credit card debt. Your debt-to-income ratio can affect your qualifications for getting a mortgage. The ideal debt-to-income ratio should be 43% or less.

You must also show a stable and reliable income, whether it’s from employment, self-employment, pensions, or other sources. Changing jobs right before applying for a mortgage isn’t a good idea. Finally, concentrate on raising your credit scores because these can affect your interest rate and other terms.

Get Your Down Payment Together

While there are mortgages you can get that require little to no down payment, realize that you will have higher monthly payments with those loans. The more money you can get together for a down payment, the lower your monthly payments will be and the sooner you can begin to build equity in your property. 

You will have to prove to the mortgage company where your down payment is coming from. Acceptable sources are savings, 401K or other retirement plans, trusts, and money gifted to you. You may not make a down payment with borrowed money. 

Once you’re prepared to apply, shop around to find a mortgage company you feel comfortable working with and will offer you the best terms. If you’re well informed, you’ll know what to look for.

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