If you are ready to look for a mortgage or you have more questions about the preapproval process, contact us. Our goal is to provide you with the most accurate mortgage information so you can make an informed decision.

Suppose your credit history or credit score could use some work. It may be something as simple as an error on your credit report. Or, it isn’t clear from your financials how you plan to make the down payment. Whatever the stumbling block may be, work to remove it to create a clear path to pre-approval.

Correct Your Credit Report

Credit reports may have errors that can impact your credit score. You should look through your credit report for mistakes such as:

• Incorrect identification
• Incorrect activity
• Identify Fraud
• False accounts
• Inaccurate payment history

You can dispute credit report errors using the Consumer Financial Protection Bureau’s guidelines or a credit repair service. A credit repair service helps clear your credit report of inaccurate or false information.

Pay Down Debt

Several factors go into how your credit score is calculated, including payment history and outstanding debt. Talk to a mortgage company about what parts of your credit history should be addressed to improve your credit rating. Most mortgage companies have simulator software that can project how much your score will improve if you pay down your debt.

Pad Your Savings Account

The more money you have in savings, the more creditworthy you look. Make sure you have enough money to cover a down payment and closing costs. Then, add funds to help cover expenses for at least three months. You never know when an emergency will happen, and lenders want to make sure you can accommodate emergencies without impacting your mortgage payments. The more money you have in savings, the better.

Before lenders will pre-approve you for a loan, they will want to verify your financial information. The following information can make the process move faster.

• Recent pay stubs
• W-2 forms from the last two years
• Proof of any additional income if using it to qualify for a loan
• Previous two years of personal federal income tax returns
• Prior two years of business federal income tax returns if you own a business
• Driver’s license or U.S. passport
• Social Security card or number
• Copy of the front and back of your green card(s) if you are not a U.S. citizen
• Bank statements that prove you have enough money to cover the down payment and closing costs
• Gift letter stating that the funds being used for a down payment is a gift and not a loan or IOU
• Last quarterly statements for asset accounts, including your 401(k), IRA, stock accounts, and mutual funds

EXPECT YOUR LENDER TO PULL YOUR CREDIT REPORT AND TO VERIFY YOUR EMPLOYMENT.

Know your credit history and credit scores. You can review your credit report once a year for free. Some credit monitoring companies provide free credit scores if you pay for their service. A strong credit history and a high credit score — above 700 — gives you a more extensive range of options when it comes to mortgage types and interest rates. If your credit score and history could use some work, consider paying down debt and making on-time payments.

Conventional home mortgages require a down payment of 3% of the mortgage amount. Not all mortgages require such a high down payment. In some instances, you may need 5% of the mortgage amount. When you apply for pre-approval, you should have the cash on hand to pay the down payment. That shows the lender you are financially capable of making the down payment.

You will also need to pay for closing costs. Depending on your circumstances, your closing costs can range from 2% to 4% of the loan amount. Consider speaking with a mortgage broker or agency about typical down payments and closing costs. In most cases, you will have to pay for private mortgage insurance (PMI) if your down payment is less than 20%. PMI protects the lender if your home ends up in foreclosure.

Every lender applies a slightly different formula to determine how much a potential buyer can spend on a mortgage. Your combined debt for a mortgage plus car payment or student loans should not exceed 36% of your gross income. Some lenders may go as high as 45% of your gross income. Some financial advisors suggest not going over 25% of your gross income. Only you know how much you can comfortably afford. Remember, just because you can buy a house doesn’t mean you should.

Look at your finances before you start the home-buying process or apply for a pre-approval. If you don’t, you may fall in love with a house that is outside of your budget, making it hard to settle for something that is. It’s never a good idea to overextend yourself when buying a home.