18 Mortgage Tips for Homebuyers and Homeowners

The first step in obtaining a mortgage is getting preapproved, where lenders determine your loan eligibility. Once approved, you will receive a letter with the loan amount. The lender will then verify and finalize your loan details.

From undergoing a credit check to submitting bank statements for underwriting, getting a mortgage loan can be an intimidating process. But with a little preparation and planning, you can find an affordable home loan without jumping through endless hoops. Use these mortgage tips to improve your home loan or refinance application.

Mortgage Tips for Homebuyers

When you apply for a mortgage, you’ll first go through a preapproval process. During preapproval, potential mortgage lenders will determine whether you qualify for a loan. If you qualify, the mortgage lender will send you a preapproval letter that tells you how much you can afford to borrow. If you accept the loan, your mortgage lender will verify and finalize your loan information and verify the data you submitted on your application.

As you approach the preapproval process, know that there are a few steps you can take to improve your chances of getting a loan, including:

1. Get Your Credit Report

Your credit report is a statement you receive from major credit monitoring bureaus that details how you use credit. When you apply for a mortgage loan, your lender will ask for access to your credit report, which will show them any loans and lines of credit you have open in your name. Your credit report also contains information about events like evictions, bankruptcies and past-due credit card payments. Mortgage underwriters use your credit report to determine how likely you are to pay back any money they lend you.

Before you apply for a mortgage loan, get a copy of your credit report. You are entitled to one free copy of your credit report from each of the three major credit reporting bureaus once every 12 months. Visit AnnualCreditReport.com to get your free credit reports and read through each item to be sure it’s legitimate. If you find an item you don’t recognize, contact the credit reporting bureau that issued the report to dispute it.

2. Reduce Your Debt

One of the first things mortgage lenders will look at when you apply for a home loan is the amount of debt you have outstanding. If you have more debt, you’ll have a harder time getting a mortgage because borrowers with more debt are statistically more likely to miss a payment on their loan.

In the months before you apply for a mortgage, take steps to reduce your debt. Make sure all your accounts are up to date and create a debt-reduction strategy to slowly lower the amount of money you owe over time. Putting just $20 extra a week toward your student loans or credit card bills can help improve your chances of getting a mortgage.

3. Know Your Loan Options

There are multiple types of mortgage loans, and the loan type you apply for will determine things like your down payment and the interest rate you pay on your loan. Some of the most common types of mortgages you’ll have access to as you shop include:

• Conventional loan: Conventional mortgages are the most common type of residential home loan. To qualify for a conventional mortgage, you’ll need a down payment of at least 3% of your loan value and a credit score of 620 or higher.
• FHA loan: Federal Housing Administration (FHA) loans are government-backed loans for buyers with lower credit scores. To qualify for an FHA loan, you will need to have a credit score of at least 500 points and a down payment of 10%. If you have a credit score of 580 points or higher, you can get an FHA loan with a down payment of 3.5%.

Other options for mortgage loans include Veterans Affairs (VA) loans for members of the military and U.S. Department of Agriculture (USDA) loans for those living in rural areas. Research the multiple types of loans and know your options before you apply for financing.

4. Boost Your Credit Score

In addition to looking at your overall credit report, mortgage lenders will also want to view your credit score. Your credit score plays a major role in your ability to get a home loan and will help determine your interest rate, the type of loan you qualify for and more. You can quickly boost your credit score by:

• Making more than one payment per billing cycle
• Remaining current on all of your accounts
• Paying down maxed-out credit cards first
• Avoiding applications that impact your credit

It may take multiple months of consistent positive credit habits to see an impact on your score. Remain consistent for the fastest results.

5. Compare Multiple Mortgage Lenders

Most mortgage lenders are clear about their qualification criteria — and not every mortgage lender has the same loan requirements. Research the specific lender you’re applying with and be sure you meet the requirements before you apply. This helps you avoid damaging your credit report — and being unpleasantly surprised when you receive a decision.

6. Get Preapproved for a Home Loan

Getting pre-approved for a mortgage allows you to know precisely how much home you can afford and shows sellers that you are a well-qualified buyer. To get pre-approved, you'll need to complete an official mortgage application with a lender and supply all of the necessary documentation. This typically includes:

• W-2 forms
• Other proof of income
• Recent pay stubs
• Federal tax returns for the past two years
• Bank statements
• Investment account statements
• Information about your current debts and assets.

The lender will pull your credit report and credit scores. They will then process this information to verify your income, employment, credit profile, and ability to take on a mortgage payment.

Based on their evaluation, the lender will issue a pre-approval letter that states how much they are willing to lend you and at what interest rate. With a pre-approval in hand, you can look for homes within your pre-approved budget range. When you find a home you want to make an offer on, being pre-approved signals to the seller that your offer is a strong one backed by a lender's commitment.

Just keep in mind that a pre-approval is not a final loan approval - you'll still need to go through the full underwriting process once under contract on a home.

7. Consider First Time Homebuyer and Down Payment Assistance Programs

If you are seeking to purchase your first home, there are various first-time home buyer programs available that can provide significant advantages. These initiatives, often backed by government agencies, non-profit organizations, or financial institutions, aim to facilitate home ownership for those new to the process. Key benefits may include more lenient credit score requirements, lower down payment thresholds (some as low as 3%), and reduced loan fees or closing costs.

Like first-time buyer programs, down payment assistance programs are frequently targeted at low-to-moderate income borrowers or those in specific professions like education, law enforcement, or healthcare. The assistance may need to be repaid or it could be forgiven over time as long as buyers meet obligations like living in the home for a set number of years. Both first time and repeat home buyers can potentially qualify for down payment help.

8. Hire a Trusted Real Estate Agent

Buying your first home is an exciting but daunting process, which is why having a trusted real estate agent by your side is invaluable. An experienced agent will be an expert on the local housing market and neighborhoods, allowing them to help you find properties that truly match your needs and budget. They can advise you on making a competitive offer and navigating things like contracts, negotiations, and inspections - processes first time buyers may be unfamiliar with. A good agent also has relationships with lenders, attorneys, and other professionals to recommend.

Mortgage Tips for Homeowners

Congratulations! You’ve been approved for a mortgage loan, and you’re ready to move into your new property. Now that you’ve signed on the dotted line, it’s time to manage your loan, refinancing if and when necessary. Use these tips for better mortgage repayment or refinancing if you already have a loan.

9. Keep a Record of Upgrades and Improvements

Unless you’re moving into a brand-new property, chances are that you might want to make improvements or renovations of some kind in your new home. Keep documentation of bills paid to contractors and companies you hire to renovate or improve your home and take photos of the areas being worked on before and after the work is completed. Having detailed documentation of all improvements you make to your property after moving in can ensure that these upgrades are reflected in your home’s appraised value should you decide to sell or refinance.

10. Know Your Equity

Your home’s equity is the percentage of your home loan that you have paid off. Essentially, it is the portion of your home that you truly “own,” as you’ve paid your lender back for what they contributed to the purchase of the property. Most homebuyers have some form of equity in their property because they made a down payment. For example, if you buy a home with a 20% down payment, you will have 20% equity in your property when you walk away from the closing table. As you make payments on your loan over time, your equity will grow until it hits 100% and you’ve paid off your loan in full.

Most mortgage lenders require you to have some form of equity in your property in order to refinance. Many require at least 20% equity — if you have less than 20% equity, you’ll need to pay private mortgage insurance (PMI) on your loan. If you’re taking a cash-out refinance, your lender might require you to have more equity in your property to qualify. Contact your mortgage lender and request a loan statement to review how much equity you have in your property before you refinance.

11. Be Present for Your Appraisal

Like when you bought your home, you’ll need to get a new appraisal before you can complete the refinancing process. But now that you own the property you’re interested in getting an appraisal for, you have a major advantage — you can now be present during the appraisal process. Being proactive during your appraisal helps maximize the possibility that your home will receive a high-value appraisal.

Before your appraiser arrives, be sure you have documentation on all upgrades, renovations, and improvements you’ve made to the property since moving in. Make sure your appraiser notes them as they tour your property. Make your home as comfortable as possible before the appraiser arrives. While appraisal rates have nothing to do with the tidiness of your home and whether you have pets running around, these factors can subconsciously influence the way your appraiser thinks about your property, leading to a lower valuation.

12. Be Sure Extra Payments Go to Your Principal

If you have extra funds, you might want to make an extra payment on your mortgage loan to reduce the total amount you pay in interest over time. While most mortgage lenders no longer penalize you for paying down your mortgage ahead of time, be sure to specify that you’d like your extra payment applied to the principal balance of the loan. Some lenders will automatically apply any extra payments made on your account to the next month’s payment, which doesn’t reduce your total interest paid.

13. Remain Proactive When Refinancing

Most refinance processes take 30 to 45 days to close from start to finish — and it’s normal to be anxious during this period. Remain proactive and respond to lender inquiries as quickly as possible to help your refinance close with fewer hold-ups.

Tips for Those Closing Mortgages or Refinancing

As you get close to finishing your mortgage or refinancing, all that’s left to do is attend a closing meeting and take control of your new property or loan. Use these tips to approach the closing process in a smarter way.

14. Don’t Come Empty Handed

Getting to the closing table can be an exciting process, but you don’t want to show up without the documentation you need to get the keys to your new home or the terms of your refinance. Before you lock the door and head to closing, make sure that you have:

• A copy of your closing disclosure
• A photo ID (a driver’s license, military ID, or passport will suffice)
• A photo ID for everyone else included on the loan (like a spouse)
• Proof of an active homeowners insurance policy (required to get a mortgage loan with most lenders)
• A cashier's check or proof of electronic transfer of funds for any closing costs or down payment you owe

If you’re buying a home for the first time, you might also want to bring along your real estate agent to make sure the closing process goes smoothly.

15. Review the Property Before You Sign

If you’re in the process of buying an existing home, you may have asked the seller to make improvements or repairs to the property before you close on your mortgage and move in. Stay in communication with the seller of the property to make sure that any repairs or replacements are finished well before you arrive at the closing table. When the homeowner confirms that the agreed-upon repairs are complete, ask to visit the property yourself before closing to be sure the job was finished professionally.

16. Understand ‘No Closing Cost’ Refinances

When you buy a home, you’ll need to pay for closing costs. Closing costs are expenses you pay to your lender in exchange for arranging and preparing your loan. Some examples of closing costs you might pay when you buy a home can include:

• Appraisal fee
• Down payment
• Inspection fees
• Underwriting costs
• Title insurance and title search fees

Closing costs usually equal between 3% and 6% of the total value of your home loan, so they can be costly. While there is no way to avoid closing costs when buying a home, your lender might offer you a “no closing cost” loan when you refinance. With a no-closing cost refinance, you don’t need to pay your closing costs at your closing meeting. Instead, your lender will add your closing costs to the outstanding principal of your loan.

Take a look at an example of how a no-closing cost refinance works. Imagine you are refinancing a home loan with a $100,000 principal balance to take advantage of lower interest rates. Your lender tells you that you will owe $2,000 in closing costs at the time of closing, or you can take a no-closing cost to refinance, which allows you to pay $0 in closing costs at the meeting. In exchange, you’ll accept a loan with a balance of $102,000 — your original principal plus your closing costs. You’ll pay your closing costs down over time the same way you pay your principal balance.

As you can see, no closing cost refinances are not free. Though you don’t pay when you close, you’ll pay a higher premium each month, and you’ll pay more in interest over time because you accepted a higher loan balance. While no closing cost refinance can be useful if rates are low, be sure to use them with caution.

17. Stay Consistent With Credit

By the time you get to closing, your underwriting process is already complete. But it’s still a good idea to remain judicious with your credit use to avoid creating an unexpected delay in closing. As a general rule, you should avoid applying for any items that might impact your credit report as you approach closing — like loans or new credit cards.

You should also avoid closing old lines of credit during the buying or refinancing process. This might seem counterintuitive — if you need great credit to apply for a home loan, doesn’t closing old credit card accounts indicate fiscal responsibility? The truth is that lenders don’t look at the number of accounts you have open when you apply for a loan. Instead, they look at the amount of credit you use versus the total credit you have available. If you close an unused credit card, you’re removing an available line of credit, which reduces your credit score.

Have an old card that’s just too tempting to carry in your wallet? Lock it in a desk drawer or cut it in half while you wait on your loan closing to avoid overspending without needing to close the card.

18. Prepare to Manage Your New Loan

After you complete the closing process, it’s your responsibility to manage your new loan. Review the details of your home loan and how your current payments differ from past housing expenses. Take a look at your budget and decide how much money you’ll need to set aside to be sure your mortgage is paid each month. Don’t forget to include necessary additional expenses that come with owning a home, like property taxes and homeowners insurance.

Compare Home Loan Options

By following these tips and taking a proactive approach to your mortgage journey, you can make confident decisions that align with your financial goals and secure a mortgage that is right for you. Remember, seeking advice from professionals and conducting thorough research will empower you to navigate the mortgage process successfully.

The company you choose to provide your mortgage loan will set the requirements you must meet to qualify. Benzinga offers insights and reviews on the following home loan and refinancing loan providers. Consider beginning your search for a mortgage with a few of the links below.

Frequently Asked Questions