Preparing for a Mortgage

How I Wish We Had Prepared for Getting a Mortgage

I had read countless articles about the mortgage process and worked with many clients as they purchased their first and second homes, but as with most things, going through the process yourself is a whole different story.

I had an idea of what to expect but there are many things I would have done differently to make our lives easier and the process less stressful. We learned a lot along the way, and I’m excited to share those lessons with you. 

Here’s what we wished we knew before embarking on the mortgage process. 

1. Simplify your accounts in advance.

Throughout the mortgage process, you will be asked for a detailed (and I mean detailed) breakdown of your assets—and you’ll do this over and over and over again. 

That means a list of all of your accounts along with statements showing what’s in each account. You’ll also be asked to document recent activity in each account. For our particular bank (who was doing our mortgage), that meant two months worth of activity. As you can imagine, the fewer accounts you have, the more simple this process will be. 

Simplifying your accounts right before you start the mortgage process can actually create more of a headache because you’ll have to explain and document all the transfers in and out. For that reason, simplifying well in advance is definitely the way to go. This would have saved us hours of work multiple times throughout the process. 

2. Know your credit score. 

The mortgage company will run your credit at least two times during the mortgage process: once at the beginning and again near the closing date to confirm that nothing has changed. Your credit score plays a big role in the process, so being in the know about your own credit can only help. 

If you are preparing well in advance of your application, you’ll have time to improve your credit score if needed. Remedying errors on your report is the quickest way to get your score up, so make sure you pull your free credit report on an annual basis and check for inaccuracies. 

You can also check your score through MyFico.com or CreditKarma, or your credit card company if they offer that service (and many now do). 

Once you have collected information about where your credit stands, avoid any hard inquiries that can ding your score (like opening a new credit card) if you’re planning on starting the mortgage process in the near future.

3. Take inventory of what you have and where.

Once the mortgage process starts moving, you’ll want to be prepared to send information to your mortgage banker (the person working on your mortgage) as quickly as possible. If you’re scrambling to retrieve account numbers and passwords each time your bank needs something, the process will quickly feel stressful and overwhelming. If you’ve simplified your accounts in advance, this part of the process will be much easier! 

To take inventory, make a list of your accounts. List each account number, the total amount in each account, and what the account contains (for example, if it’s an investment or retirement account, you’ll want to note the specifics). The mortgage banker will send you their own form once you start the process, but you can create a system for easy reference in the meantime. 


4. Get all the necessary documents in order.

The amount of documentation you’ll need to provide will vary depending on how you earn your income and the specifics of your financial situation. For example, if you are an entrepreneur or small business owner, you’ll need (much) more documentation about your business’s profitability than you would if you were salaried with a company. 

While the bank will likely have follow-up questions beyond these documents, this list will get you started. Don’t forget, the inventory listed below applies to each applicant. If you’re applying with a partner, you get double the fun! 

  • Copies of pay stubs for each applicant, reflecting a minimum of a month's income

  • Names/addresses of employers for two years

  • W-2s for two years

  • One to two years of tax returns

  • A completed and signed Form 4506-T or 4506T-EZ, provided by your Mortgage Banker

  • Bank statements for two to three months

  • If self-employed, year-to-date profit and loss statement, plus signed returns for last two years

  • Proof of pension income, if applicable

  • Social Security and Disability payments, if applicable

  • Dividend earnings

  • Bonuses

  • Child support or alimony payments (optional for you to disclose)

  • A copy of earnest money deposit

  • Information on debts such as car loans, student loans and credit cards

  • Security accounts (stocks, bonds, life insurance)

5. Build in some buffer time.

As you have probably guessed by now, getting a mortgage can be a lot of work! Your mortgage company can give you a general sense of a timeline based on their process, but things often take longer than expected and there are many people and parties involved. 

Don’t be afraid to check in, remind, and follow-up with individuals or groups to make sure everything is running smoothly and on time. If you aren’t able to close on schedule, it may be because something got lost in the shuffle. Although it isn’t your fault, it still only affects you in the end! 

Checking in as you go along and building in some buffer time can help minimize disappointment. 

6. Shop around for the best rate.

This one is a biggie but it comes when you are ready to start the process! Call up some banks, talk to a mortgage specialist, and give them the background on your situation. What is the best rate they can give you? 

Take note of the best offers and use the best offer you get to pre-qualify. We called all the big banks and a few smaller banks in the area, which gave us a lot of information to work with. 

When it comes time to lock in your rate, call your banker to confirm that it’s the best they can do, then call around to some other bankers to see if they can beat it. If they can, bring that information back to your current mortgage banker and see if they can meet or best it. 

While this takes some extra effort, you actually want the banks to fight for your business. In the end, you can feel confident that you got the best possible rate. 

The work is worth it when we’re negotiating an interest rate on such a large loan. Every point can make a big difference! Not to mention, it’s a loan you’re likely to be paying for a long time! 

7. Realize that pre-qualified doesn’t mean you qualify.

During the pre-qualification process, the bank runs a couple of simple formulas using a combination of your income, assets, and debt. Each bank has its own threshold for what qualifies, and at this time, they take the information you give them at face value and don’t question it. 

That’s why pre-qualifying doesn’t necessarily mean you qualify for a mortgage. For example, in our case, we severely overstated our income during pre-qualification because a number of our earnings ended up not qualifying as income. The bank wouldn’t count my husband’s bonus income because he hadn’t yet worked at the company for two years and they wouldn’t count his rental income on a property he manages. 

The biggest surprise to us was my business. We didn’t realize that they would only count my business profit as income, rather than my business revenue. Salaried employees can report pre-tax salary but business owners can only report income after all expenses!? Doesn’t seem fair! 

Needless to say, these revelations can quickly turn a peachy pre-qualification to a non-qualifying mortgage.