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Things to do Before Applying for a Home Loan

June is National Homeownership Month, and if buying a home is on your radar, it’s the perfect time to prepare. Securing a mortgage is a significant financial commitment, but with the right steps, you can set yourself up for success. Here are five practical tips to help you get ready for the home loan application process.

Check Your Credit Report

Check your credit report at least once a year (if not more) to ensure accuracy. Even small errors can prevent you from getting approved for a home loan or might force you into higher interest rates. When it comes to purchasing a home, you want to make sure there are no errors before applying with a mortgage provider. You can order your free credit report at annualcreditreport.com OR you can sign up for one of our free credit report reviews. During this 30-minute, one-time appointment we’ll provide you with a copy of your credit report and FICO credit score. We’ll go over everything on your report and offer personalized recommendations for improving your credit. This is a ‘soft pull,’ so it will not affect your credit AND it’s 100% free for you.

Keep and Maintain a Budget

Lenders want to know that borrowers have a handle on their finances. By creating a monthly budget and sticking to it, borrowers can show that they can adequately manage their cash flow and repay the home loan as expected. Keep in mind, a budget is NOT one-size fits all! Your budget should reflect your values and your goals. If you’re not sure how to how to make that happen, we can help! Our 1-on-1 financial coaching is a great place to build those financial foundations. You can sign up for your first session here.

Pay Down Your Credit Cards

Potential borrowers who have credit cards that are maxed out or over their credit limit will create unnecessary red flags for mortgage lenders. You never want to give mortgage lenders the impression that you are over-extended with credit cards. Keep credit card balances at 30% or less of the total available limits. For example, if you have a $1,000 credit card limit, don’t carry a monthly balance of more than $300 if possible. By keeping balances low, you will not only improve your image with lenders, but you may also dramatically increase your credit score. If you’d like some help coming up with a debt reduction plan, our financial coaches have your back!

Open a Savings Account

Saving is very important overall, but when you’re a homeowner, you never know when something will need to be fixed or replaced. By having a savings account, you can ensure that unexpected emergencies don’t become an unexpected financial nightmare. If a High-Yield Savings Account is of interest, check out this list of the best rates. Not sure what a high-yield savings account is? Interested in learning more? Want to finally commit to your savings goals? Once again, our coaches are here to help!

Select the Right People

Buying a home is a big deal! You need to surround yourself with the right people. Select a knowledgeable lender that is willing (and able) to answer all of your questions. It’s also important to remember that you can ‘shop around’ and apply with multiple mortgage lenders to find the best rate and best company. If you complete your ‘rate shopping’ within 14 days, it only counts as one hard hit on your credit score. Finally, you also want to work with a trusted realtor that truly understands your needs and wants. Keep in mind, you can always change realtors if you ever feel disrespected or that they aren’t meeting your needs.

Embarking on the journey to homeownership is both exciting and challenging. By taking these proactive steps—reviewing your credit, maintaining a budget, reducing debt, building savings, and assembling the right team—you’ll position yourself for a smoother mortgage application process. Remember, you’re not alone in this journey! Our team at Prosperity Connection is here to support you every step of the way. Whether you need financial coaching or just a credit report review, we’re committed to helping you achieve your dream of owning a home.