How to Apply & Get Approved for a Mortgage/Home Loan

If you are in the market to buy a house, then you will probably need to apply for a mortgage. A mortgage is just a fancy word for a home loan. In this article, I will try to help you understand the application process for a mortgage & how to apply for one.

How Does A Mortgage/Home Loan Work?

When you want to buy a house, you will usually need to get a mortgage/home loan. This is because the average person cannot afford to spend thousands or hundreds of thousands of dollars up front to buy a house. So instead, you can borrow money from a lender & pay the money back on a monthly basis (with interest).

When you make the decision to apply for a home loan, then you first need to find a lender.  There are several banks and mortgage companies that will lend you money if you qualify for a loan. You can browse the "loans" section of the phone book, or request information from your local banks. You can also shop around for mortgage rates & quotes online.

Once you have found a company that has reasonable rates/terms, you can apply for the loan. The typical mortgage loan application will ask you for the following things:

• Loan amount you are requesting

• Your personal information (and anyone else who co-signs for the loan)

• Your income information with check stubs & W2 forms needed for proof

• A list of your current assets (cars, savings, etc.) and liabilities (credit card debt, loans, etc.)

• Your credit report history (the bank will look that up automatically)

This is standard information that the lender will need to review your application & see how much you can borrow & how reliable you are at paying back creditors.

After the bank/lender reviews your information, they will tell you how much you can borrow, the interest rate, and different loan terms you can select.

A general rule of thumb is that 30-year fixed rate mortgages are generally better. There are several other types (variable rate, interest only, etc.). Most of these, however, are more costly in the long run & change when the interest rates change. A fixed rate loan, however, will have the same interest rate & monthly payment for the entire length of the loan.

Also, many lenders will charge an application fee or loan fee. Companies vary on the fees charged & when they charge them (some charge a fee for the application, others charge fees or "points" after you have been approved).

Tips on How to Make Sure You Get Approved for a Home Loan/Mortgage

Before submitting a mortgage application, here are 5 quick tips to help you get approved:

1. Work to make sure your credit score & history are in good standing.  If they are not in good standing, then take time to fix your credit. This can help you get approved & save thousands on additional fees & charges.

2. Make sure you can show proof of an income. If you have no money coming in (or not enough money coming in), then you will likely be rejected. This is just common sense. Would you lend thousands of dollars to someone without any money coming in?

3. Seek a good co-signer. This can be a spouse, parent, or grandparent, etc. Basically anyone who trusts you and is willing to sign & be responsible if you do not make payments.  This will increase your chances of getting a loan.

4. Borrow within your means. Remember, in addition to your monthly mortgage payment, you will have other hidden fees such as house insurance, property taxes, etc. Even if you fall in love with a place, don't request an amount that is out of your financial control.

5. Place a reasonable down payment. If you can place a down payment of 10-20% of the loan amount, this will almost always improve your chances of getting the loan.