1st Step: Check your credit report with the three credit reporting agencies. Avoid buying a car of other big ticket item in the months before you apply for a mortgage.
2nd Step: Be ready to offer up paperwork to document your income, debts and assets. Borrowers now need to show one month’s worth of pay stubs, 2 months of bank statements and 2 years of tax returns.
3rd. Step: Talk to your Realtor and get pre-approved by a local lender before you start looking for a house. It sets boundaries around what you can afford. In a scarce inventory market you will need to instantly have a pre-approval “Lender Letter” to make an offer.
4th Step: Decide the length of the loan: 30 years, 15 years, ARM. ARMs make sense only for people who know for sure they are going to be in a house for a limited time. You can decide the loan length after a contract is ratified.
5th Step: Lock in your rate. Do not try to “time the market.” Mortgage rates almost always rise much more quickly than they fall.
Understanding these steps relieves the stress and allows you to focus with your Realtor on finding the best house to meet your needs.