Before You Apply for a Home Loan Online

Summary: In this lesson, I'll explain the steps you should take before you apply for a home online through a mortgage lender's website.

Applying for a home mortgage loan via the Web is really quite simple. In fact, that's one of the reasons I publish this blog -- to teach people who easy the process can be. But in reality the process starts long before you apply online for a home loan quote. At least, it should.

Before You Get Home Loan Quotes

Before you start visiting lender websites and requesting quotes, you should spend some time reviewing your finances and coming up with a realistic budget for yourself. Here are five things you can start with:

1. Start Saving Money

In the current economy, most lenders will require you to make a down payment on the home you intend to buy. You used to hear about "no money down" home loans all the time, but they are hard to come by these days. This is true with online mortgage lending as well. In fact, you'll probably be required to make a down payment in the neighborhood of 20% -- especially if you want to get a decent interest rate on the loan.

That's just one of the reasons you should start saving money. You'll also need enough cash to cover your closing costs, and these can add up to several thousand dollars. Most lenders will review the amount of money you have in checking / savings for this very reason. If you apply for a home loan online you could very well save some money on these closing costs, but you should prepare for the worst and hope for the best.

2. Review Your Credit Reports

When you request a quote for a home loan online, what you get back is just an initial offer. After you follow up with the mortgage lender or broker, they will review your finances much more closely. Your credit score is a big part of this review process, and your score is based on the information contained within your credit reports. So early on in the home loan process, you should get copies of all three of your credit reports and review them for errors / inaccuracies.

If you do find an error, dispute it through the company that produced the report until the item gets removed. Inaccurate information on your credit report can drag down your score, which makes it harder to get qualified for a mortgage loan.

3. Check Your Credit Score

We just talked about the importance of having a good credit score in this economy. So this is another item you should obtain before you apply online for a home loan. Remember, your credit reports and scores are two different things entirely. The former is a record of your financial history, and the latter is a number. The higher the number the better. A high credit score will make it much easier to qualify for a mortgage, and (more importantly) it will allow you to get the best interest rate on that loan.

You can learn more about obtaining your scores on the credit page of our main website.

4. Determine Your Budget

I was recently watching a news program with yet another sad story of mortgage foreclosure. They were interviewing the person who lost a house to foreclosure, and she said: "When we got the home loan we just figured we could afford it, because the mortgage lender approved us for the loan."

This completely backward, and I've been telling people this for years. Don't ever let a lender tell you how much you can afford to pay each month. You must determine this for yourself. So before you apply for a home loan online, you need to have a budget in mind -- including the maximum amount you can afford to pay every month.