Planning to apply for a mortgage? Prepare financially in these 4 ways first.
Get all your ducks in a row


Applying for a mortgage is a big step, both towards becoming a homeowner and in terms of your finances. Ideally, when you finally submit your application, you will get approved — and it will be under the terms you are hoping for.
To increase your odds of success, take some time before you begin the application process to get all of your ducks in a row, financially speaking. Even if doing so delays the process a bit, it is likely going to be worth it in the long run — as Bankrate said, "by improving your finances before applying for a mortgage, you give yourself the best shot at getting good terms."
1. Check in on your credit
"As you prepare to become a future homeowner, the first step in priming your credit is knowing what yours looks like," said CNBC Select. Take some time to view your free credit report from each of the three major credit bureaus, which you can do by visiting AnnualCreditReport.com. If you spot any errors or anything otherwise amiss, take the time to fix it, as errors on your credit report can reduce your credit score, said QuickenLoans.
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Also take a peek at your credit score, as this is "one of the bigger determining factors for mortgage approval," said Bankrate. A credit score of "661 or higher places you in the creditworthy category," but if "your score is between 600 and 660, you could be close to being ready for a mortgage, but not there yet." Meanwhile, if your score is "599 or lower, you're likely not ready to take on the additional debt."
2. See if you can improve your DTI ratio
Another factor that lenders will weigh when reviewing your mortgage application is your DTI ratio, or debt-to-income ratio, which compares your existing recurring debt payments (think car payments or student loan payments) to your gross monthly income.
Generally speaking, "your debt-to-income ratio cannot be more than 43% to qualify for a home purchase — and the lower this ratio is, the better," said CNBC Select. If yours is pushing this upper limit, figure out a strategy that will help you start to pay down some of your debts.
3. Hold off on applying for any other new credit for now
If your goal right now is securing a mortgage, try to keep your eye on the prize. Applying for other new forms of credit, whether that is a credit card or a car loan, will result in a hard inquiry, which "will ding your credit score a few points temporarily," said CNBC Select. Further, said Bankrate, taking on new loans will "add to your debt load, which increases your DTI ratio and can potentially dent your score."
4. Make sure you have enough savings
Hopefully you have already gotten a headstart on this one, as purchasing a home is certainly not a cheap endeavor. Indeed, "you’ll need to be ready with considerable upfront cash: savings for a down payment and closing costs, along with general reserves for costs like furniture or home repairs," said Bankrate. To avoid private mortgage insurance, you will need to make a down payment of at least 20% of the home's price, though you can put down less than that. Meanwhile, said Bankrate, "the amount of closing costs depends on where you’re buying, but they generally range from two to five percent of the purchase price."
Alongside all of that, you will want to ensure your emergency fund is still intact. "Having an emergency fund — a supply of cash you can access in the event of a dire situation — can help offset these surprise costs," and also better ensure that you can "continue to pay your mortgage payments in the event you are laid off after buying your home," said CNBC Select.
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Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
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