When you start to think about applying for a mortgage for a new house or refinance your current home, be prepared to do a bit of work beforehand. The lender will want to know how much money you make per year and how much you owe to others. This is called debt-to-income ratio.
To do this, the lender will ask you for lots of documents including tax returns, pay stubs, records of savings and investments, plus a list of all the debts you have. They will run a credit report, and check to see if other lenders have run a credit report on you as well. If you have applied for other loans and been rejected, the current request may be denied as well. The credit report will show not only outstanding loans, lines of credit, and credit card charges, but your payment history, i.e. late payments, missed payments, etc. This affects not only whether or not you will qualify for the loan but the rate of interest you may be charged.
As you can tell, if you are seriously interested in getting a mortgage, you should consider reducing your debt as far as possible and avoiding any major purchases you can’t really afford, save a good amount toward a down payment, and be prepared to provide copies of anything related to your finances. When you feel you are ready, be selective about how many lenders to which you apply.
You should also expect to have extra funds available to cover the closing costs, moving expenses, and any remodeling you may want to put into your new place, as well as emergencies.
Homeownership can seem like a daunting task, but with some realistic expectations and a lot of pre-planning, it is a very achievable goal.