- pay stubs
- statements from banks, brokerages and retirement accounts
- past income tax returns
- records of debts such as auto loans, mortgages, student loans and credit cards
2. Find out your credit score.
You can go to MyFICO.com and see your credit score and a get a copy of a credit report for $15.95. Your credit score is a distillation of your bill-paying history expressed as a three-digit number between about 300 and 850, the higher the better. A score above 720 is most desirable, the equivalent of a getting an A. These credit scores are calculated using a secret mathematical formula devised by the data management company Fair, Isaac & Co.- hence the name "FICO."
3. Fix any errors on your credit report.
Errors appear regularly on credit reports, and they can lower your credit score and keep you from getting loans with lower interest rates. Clerical or computer errors cause most mistakes on credit reports. You can correct them by sending a letter to the credit bureau describing the mistake and requesting an investigation. Getting that incorrect report off your credit report will take at least a month.
4. Find a Lender, who will estimate how much you can afford to borrow.
There are hundreds of mortgage products out there, so be sure to find the right one for your needs. Before you approach any lenders, figure out your financial strategy. Ask yourself these questions:
- How long do I plan to live in this house?
- Where do I see myself in five or ten years?
- Do I have to or want to make home improvements?
- Do I want to keep cash on hand for other investments?
- Can I take financial risks?
- Do I want to be debt-free?
Now that you have a reasonable picture of your financial philosophy, shop around and evaluate your options. Don't rush into the first loan offer you get.
5. Get pre-approved for a mortgage so that when you make an offer for a house, it's taken seriously.
When you're pre-approved, a lender has agreed to lend you a certain amount of money for your home purchase at specified terms and conditions. Pre-approval gives you leverage in the deal-making process, because it establishes your buying power. The letter of preapproval you get from your lender makes the bid you put on a property as reliable as a cash offer.
Now that you're pre-approved for a mortgage, you're ready to shop till you drop.
