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Pre-Application Process: What To Do Before You Apply

Oct 11, 2007
This article examines some of the issues that you may wish to resolve before you even pick up the application form for a home loan. Keep in mind that it is nearly impossible to be dishonest on a home loan application. The information that you submit will be checked and verified so the more problem areas you can fix before submitting the application the better your chances of getting the loan.

Here are some tips that might help you:

Lenders like to see current employment at the same place for at least two years running. If you are a little shy of that benchmark and can hold off until you meet that milestone, then do so.

If you have to borrow money from family or friends in order to have a down payment, do so at least six months prior to submitting the application. This is not cheating, it is good planning.

Before you even consider filling out an application order a copy of your credit reports from the three major credit reporting agencies. When you get them, carefully go over each one and look for any mistakes or omissions. By law, the agencies have to make corrections when corrections are warranted. Remember, these same reports will be used later on to determine your credit score so make sure the information is correct and up to date.

Another important issue to carefully consider before submitting your application is your current debt level. If you have a lot of loans outstanding you should seriously consider either consolidating them or paying off as many as possible before you submit the application form. Lenders will use a debt-to-income ratio in considering your creditworthiness and the less debt you have the better. It is far better to do these pay downs six months in advance of your application submission.

If you are behind in any payments, make sure you catch up on those before you submit the application. Again, try to do this in advance of submission. If at all possible, try to have at least three to six months of timely payments for the lender to see.

There are some occasions when bad credit marks are legitimate and will be on your credit report. If this happens be prepared to explain those to the lender. Be honest with the lender and when possible substantiate your story with documents.

Do not close long-held credit card accounts. Lenders like to see long histories of credit. You do not have to charge anything to this account just keep it open. If you really want to close the account, do so after your loan is approved.

Once you have taken care of all the problem areas that you can take care of, you may want to consider doing a pre-qualification with your bank or lender. This is like a dry run and it will help you to see exactly how much money your lender is willing to stake you. Pre-qualification is usually a free service. Keep in mind that pre-qualification is not the same as pre-approval, but it can be very helpful in showing your how much house you can get using your current financial status as the foundation.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at Homeowner Loan and Consolidation Loan
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