5 Steps to Getting a Mortgage from a Trusted Mortgage Broker

The ultimate test of your financial health may come when you decide to buy a house. For most people, owning a home is the largest single investment they will ever make, which is why applying for a mortgage can be frightening.

“Some people believe they have to save 20% for their down payment, and they see that interest rates are rising, so they just keep renting,” says Ana Germeroth, owner of Living Mortgage Group. Ana recommends these five steps to prepare your finances, as well as your mindset, for the mortgage application process.

1. Assess your financial picture.

The first step to getting a mortgage is to document your pre-tax income and meeting with a mortgage professional. It may feel premature to call a mortgage broker, but it will be easier to bring the broker in early, even before you call a realtor. A broker can look at your income, pull your credit report—a soft-pull that won’t hurt your score—and help you devise a plan to reach your goals.

2. Understand the debt-to-income ratio.

“People with thousands of dollars in student loans think they’ll never be able to buy a house, but it’s just not true,” Ana says. The debt-to-income ratio focuses on your monthly payment obligations, not the big picture. Most student loans, for example, have very low monthly payments. Credit card debt works the same way. A mortgage broker can calculate your debt-to-income ratio and guide you through making changes if necessary.

3. Don’t make any big purchases.

Once you’ve decided to buy a house, it’s important to stay focused on that financial goal. Adding to your debt load before the closing could have a negative impact on your loan approval. As soon as you close on your new house, your finances won’t be under such scrutiny. In the meantime, save all available cash and don’t take on any new debt.

4. Save for closing costs.

Having the money for your down payment is not enough. You will pay other costs at closing, like mortgage insurance, prepaid escrow accounts and flood insurance. Closing costs alone, in addition to your down payment, should equal 3.5-4% of the purchase price. Even if you get a zero-down mortgage, you should still be prepared to pay closing costs. Follow your mortgage broker’s guidance carefully to be sure you have the right funds on closing day.

5. Don’t be disillusioned by pre-qualification.

A pre-qualification letter is something a real estate agent might want to see before writing up your offer on a property, but don’t place too much faith in the pre-qualification. Instead, work on getting all the required documentation to the mortgage broker before making an offer on a property. With all the documentation in hand, the broker will have a much better idea what you will qualify for. Your mortgage broker may be able to assist with the negotiation by offering a fast closing if she has the completed application in hand when you make the offer. “I’ve been able to close a loan in seven days before, but 21 days is the average,” Ana says. “Time to closing is an important detail to some sellers and can influence their decision to accept an offer.”

Whether you’re a first-time homebuyer or a veteran of the real estate market, obtaining a mortgage is a big step. Preparing your finances in advance can put you in the best light when mortgage lenders review your application and when sellers consider your purchase offer.