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Steps to take before meeting with your lender.

article-applying-for-mortgageWhether you’re on the hunt for a new home or have found the place of your dreams, doing a bit of homework and planning before applying for a loan can help the application process go more smoothly.

A lender will want to see evidence that you’ll be able to make regular, on-time monthly payments, and you’ll need to submit a variety of paperwork to verify factors like your income, current debt level and cash reserves.

Before heading to a meeting with your lender to apply for a mortgage, tackle these 5 steps:

  1. Determine the cost of home ownership: The price of the home you want to buy is important, but that’s just the starting point. The amount of your down payment — ideally 20 percent of the agreed upon price — will determine your monthly principal and interest costs, as well as the rate you secure. If you have time, consider getting prequalified. This can help you crunch these numbers and determine how much you can afford. (Also, if you sign up to receive our free rate alerts, we’ll keep an eye on the market for you.)Use these numbers to create a budget, which includes not only your estimated mortgage costs, but additional expenses such as utilities and home insurance. Check out this list of 8 additional costs.
  2. Check (and improve, if needed) your credit score: A low credit score may impact the loan amount a lender is willing to give you, as well as the interest you’ll need to pay. Here are a few tips to help improve your score, as featured in our credit video series:
    • Correct any discrepancies on your report: Report any errors you find to the credit bureaus, including TransUnion®Equifax® and Experian®.
    • Pay down outstanding credit card balances: A low debt-to-credit ratio can have a positive impact on your score.
    • Pay your bills on time: Missed payments can lower your credit score, so avoid unintentional lapses by setting up automatic payments.
    • Do not apply for new credit cards or other loans while looking for a home. Loan officers  may be more hesitant to approve loans when they see a string of recent credit applications on your records. This can suggest a buyer may have difficulties repaying the loan over the course of time.
    • Keep monitoring your score!
      Read on: See our home-lending special offers.
  3. Know your debt-to-income ratio: Lenders divide your total monthly debt payments by your gross monthly income to estimate your ability to handle mortgage loan payments. The number matters. A 2014 FICO survey found that bank risk professionals now view excessive mortgage loan applicant debt-to-income ratios as the No. 1 lender concern. To receive a qualified, affordable mortgage loan (one that doesn’t include excess points, fees or other potentially costly features), you’ll generally need to have a debt-to-income ratio that’s 43 percent or less, according to the Consumer Financial Protection Bureau.
  4. Get your personal documents in order: Various mortgage brokers and lenders may ask for different documents, but according to the National Association of Realtors®, most request:
    • Your social security number and two forms of government identification (such as a driver’s license, passport or other document)
    • Two years’ worth of W-2 forms or paystubs — or other documentation, such as a year-to-date profit and loss statement if you’re self-employed — to verify income
    • Tax returns from the past two years
    • Two to three months’ worth of bank statements and explanations of any bank accounts opened in the past six months
    • Proof of any other income source, like alimony or child support
    • Information on car loans, student loans or other consumer debt you’re paying off and any other properties you own
    • Other documents, such as a landlord statement indicating you have a positive rental history

    If your parents or another family member are giving you money to put toward the purchase, they’ll need to provide a “gift letter” stating that the money is a gift, not a loan, and won’t need to be repaid.

  5. Have money earmarked for closing fees: This is the day you’ve been waiting for, and the Consumer Finance Protection Bureau gives you a vivid idea of what you can expect during the closing.

According to Zillow®, you can anticipate that your total closing costs will average 2 to 5 percent of your home purchase price. They should not, however, be a surprise to you. Within 3 business days of receiving your loan application, the Real Estate Settlement Procedures Act (RESPA) requires your lender or mortgage broker to give you a Good Faith Estimate of what you’ll pay.

The actual fees must be shown to you in the form of a HUD-1 Settlement Statement at least one business day before your actual closing date. You can often add these expenses to your loan to avoid paying them upfront, but as HUD notes, you should be aware that’ll increase your total loan amount – and monthly payments.

For additional home buying resources, check out the Consumer Financial Protection Bureau website.

Looking for more information about mortgages, refinancing or ways to make valuable home improvements? See our special offers available on our mortgages and home lending page.


Banking products and services are subject to bank and credit approval. BMO Harris Bank N.A. Member FDIC. 

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