Applying for a mortgage is one of the most important financial decisions a person will make, and the more prepared you are, the smoother the process will be. Whether you’re a first-time buyer or getting back into the market, a few smart steps ahead of your application can help you avoid delays, lower your stress, and potentially secure better loan terms. This guide breaks down a few important steps you should take before you start the mortgage process to get yourself on solid financial footing.

1. Check Your Credit Report and Score

Your credit score is one of the most important factors lenders consider when deciding whether to approve your loan—and what interest rate to offer. Before applying, pull your credit report from all three major bureaus (Equifax, Experian, and TransUnion). You can obtain free copies of each report once per year at https://www.annualcreditreport.com/ for free. This secure site is made available to you as a consumer to review and address items on your credit report without incurring unnecessary credit checks and third-party costs. When reviewing your report, look for any errors, such as incorrect account balances, outdated information, or fraudulent activity, and dispute them right away. Also, pay down existing debts where possible to improve your credit utilization ratio. Even a modest improvement in your score can save you thousands over the life of your loan by qualifying you for a lower interest rate.

2. Calculate Your Budget

Before talking to a lender, it’s essential to understand how much home you can comfortably afford. In a future article, we will dive deeper into the topic of qualification vs. affordability, but for most households, this number should be somewhere between 25% – 35% of your gross monthly income. This step doesn’t just mean estimating your future mortgage payment—it includes factoring in property taxes, homeowner’s insurance, HOA fees, and maintenance costs. Use a mortgage calculator to run different scenarios and understand how changes in interest rate, loan term, or down payment affect your monthly cost. Knowing your limits helps you stay grounded and focused during the home search, reducing the risk of overextending financially. This single step can single-handedly reduce a great deal financial stress and burden post-closing. Borrowers who take the time to develop their budget in a thoughtful and disciplined manner, are much more likely to set themselves up for success during the mortgage process.

3. Save for a Down Payment and Closing Costs

Even if you’re considering low or no down payment options like FHA or VA loans, having some savings is crucial. A down payment reduces the amount you need to borrow and may lower your monthly payments. Additionally, closing costs—which can include lender fees, title insurance, and escrow funds—typically range from 2% to 5% of the home’s purchase price. Most budget consultants recommend having three to six months of expenses saved in an emergency fund. This is a good rule of thumb as you begin the mortgage and homeownership process, as homeownership inevitably comes with unplanned expenses. Planning ahead ensures you won’t be caught off guard when it’s time to sign on the dotted line. Extra savings also give you a cushion for moving expenses or emergency repairs after closing.

4. Gather Your Financial Documents

Your lender will require documentation to verify your income, assets, and liabilities. This usually includes recent pay stubs, W-2s or tax returns for the past two years (especially if self-employed), bank statements, and documentation of any other sources of income or assets. Having these documents ready to go will not only speed up the process but also show that you’re organized and serious about your loan application. If you’re receiving gift funds from a family member, you’ll need a gift letter and proof of transfer, so gather that paperwork too. It is important to note that each loan is unique because each borrower’s financial situation is unique. The above list of items provides a baseline of documentation that you should expect to be required by your lender. The key principle here is to be organized and prepared. You want to be able to accurately tell your financial story to your lender, and document that story with the items noted above. Keep in mind that most lenders are going to be underwriting their loans to investor guidelines, which means that are requiring those items because those items are going to be required of them by the investor.

5. Avoid Major Financial Changes

In the months leading up to your application, try to keep your financial activity as stable as possible. Don’t buy the furniture before you buy the house! It can be so tempting to begin shopping for the items that will make your house a home once you are approved and scheduled to close. Resist the temptation to buy that new couch or dining table until your loan has closed and funded. In addition, avoid opening new credit cards, financing a car, or making other large purchases on existing credit cards. These changes can increase your debt-to-income ratio or negatively impact your credit score, which could cause your loan application to be delayed or denied. Even something as small as a new store card can raise questions during underwriting, so it’s best to pause any major financial moves until after your loan has closed. It is important to note that even after application, most lenders utilize a debt monitoring service that will alert them to any new credit obtained and charges incurred during the mortgage loan process. If an alert is received, the lender must require documentation for that item and factor the terms of the newly obtained credit into their mortgage underwriting decision. This is another area where discipline will pay dividends as you navigate this process.

6. Research Loan Types

Understanding your mortgage options ahead of time gives you a leg up when speaking with lenders. Each loan program—such as Conventional, FHA, VA, or USDA—comes with its own eligibility requirements, pros and cons, and cost structures. For example, FHA loans are great for those with lower credit scores but come with larger up-front mortgage insurance premiums. VA loans are excellent for veterans and typically don’t require a down payment. Learning about these programs can help you ask better questions and choose the right fit for your situation. Be on the lookout for future content that breaks down mortgage types and the unique benefits of each.

The Common Sense Takeaway:
Preparation today means fewer surprises tomorrow. The more proactive you are in these early steps, the more confident and in control you’ll feel when it’s time to apply for your mortgage.

_{Disclaimer: The author of this blog is not a licensed mortgage originator. All information provided should be verified with a licensed lending professional. Information provided in blog posts by The Common Sense Mortgage are for educational purposes. All mortgage loans are subject to individual investor guidelines and underwriting approval.}