When to apply for a mortgage
Buying a house is a meaningful milestone in anyone’s life. Whether it’s newlyweds, recent college graduates, or long-time renters, finding it and making that offer is a significant step.
Before you can move into that dream house, though, there’s a very important step you have to take: secure financing for a mortgage. So, you might be wondering when it’s the best time to apply for a mortgage.
Timing your application strategically can ensure you get approved and lock in the best possible rate.
Read on to learn the process for how and when to apply for a mortgage loan.
Build your credit score
Your credit score is one of the biggest decision factors as to when to apply for a mortgage because it significantly influences whether you’ll be approved for a mortgage and the interest rate you’ll pay.
Mortgage lenders look at FICO® credit scores for two reasons: to gauge your reliability as a borrower and to determine if you qualify for the amount of mortgage you want.
So clearly, your credit score impacts when you should apply for a mortgage.
Suppose you’re looking to build your credit health in addition to paying down your existing debt. You can utilize platforms like CreditBoost* to report your on-time rent payments to TransUnion and contribute to your FICO 9, FICO XD, and VantageScore credit scores.
640 is generally regarded as the minimum score you should have when applying for a mortgage. Anything around 720 opens the door to some of the best rates.
Follow these tips to have a score as high as possible:
- Monitor scores monthly so you'll know when you’re ready
- Utilize credit builder loans or secured cards
- Become an authorized user on someone else's account
- Limit hard credit inquiries
- Build a positive payment history
This may change your timeline for when to apply for mortgage approval, but it’s an important part of the process, and your patience will pay off.
There are two questions to consider: When can you apply for a mortgage and when do you apply for mortgage approval? They sound similar but are different.
Before you get to those, there are some additional things you need to do in preparation—besides building your credit scores.
Reduce your debt-to-income ratio
Lenders analyze your debt-to-income ratio (DTI) to ensure you have enough income left over after you make payments on your debts to comfortably make mortgage payments.
Before applying, pay off as much debt as you can, including:
- Credit cards
- Auto loans
- Student loans
According to the National Association of REALTORS® (NAR), one of the biggest reasons mortgage lenders reject a homebuyer’s application is their debt-to-income ratio.
If you have a DTI below 36%, you’re in good shape. The ideal number can vary depending on the type of mortgage you’re applying for, but 36% is the standard benchmark to aim for.
Save up a down payment
While low down payment mortgage options exist, saving at least 3-5% for a down payment makes approval more likely. And a 20% down payment lets you avoid costly private mortgage insurance (PMI).
A larger down payment can also help if you have a low credit score or higher DTI ratio. And, of course, it means you’ll need to borrow less.
First-time buyer programs like FHA, VA, and USDA loans offer flexible low down payment options if needed. But the higher your down payment, the better.
Have consistent income streams
Lenders need to verify your ability to reliably make mortgage payments. They'll review tax returns and paystubs to confirm you have:
- At least two years of stable employment history
- Steady or increasing income over time
- Low likelihood of job loss or income disruption
Mortgage lenders refer to your income documents to determine how much you can afford to pay for a house and confirm you’ve had a consistent stream of income for the past two years.
This can impact when to apply for a mortgage when buying a house.
A good rule of thumb for figuring out your price range is to use the 28/36 rule.
According to this rule, you shouldn’t spend more than 28% of your pre-tax monthly income on home expenses and no more than 36% on total debt (thus getting back to the DTI ratio).
For example, if in a month you make $5,500 and have $500 in debt payments, your mortgage payment shouldn’t exceed $1,480 (36% DTI).
Consider the best time of the month to apply for a mortgage
Is there a difference as to what day of the month you apply for a mortgage? You’ll be surprised to hear this, but there actually is.
Aim for the start of the month when lenders are less busy. You're also more likely to lock in lower interest rates then.
Avoid applying mid to late month when lenders are slammed.
The mortgage process averages 43 days. Account for closing timelines when determining ideal timing, especially if set on moving by a certain date.
Get preapproved early
Preapproval provides a tentative initial loan approval, showing sellers you're qualified and ready to move fast. This gives your offer a competitive edge.
Having a preapproval letter in hand before house hunting lets you make instant offers without contingencies when you find the perfect house.
Everything discussed so far is buildup prior to the actual application. But if you’re trying to figure out when to start mortgage application submissions, then preapproval is a good first step after all the preparation described above.
Apply with multiple lenders
Every lender has unique mortgage products, rates, and fees. Applying with 3-4 lenders gives you bargaining power to secure the most favorable deal.
When should you apply for mortgage approval? As long as all applications occur within 45 days, multiple inquiries will only count as one hard credit pull. So don't hesitate to shop offers.
Avoid changes after applying
Once you’ve submitted a mortgage application, make sure not to do any of the following actions because these could negatively impact your approval odds:
- Taking on new lines of credit or debt
- Making major purchases like a car
- Changing employment
- Depositing unusual lump sums without explanation
- Letting income documentation lapse
Consult a reputable mortgage broker
Finally, consult an experienced broker. They will simplify and guide the process by advising you on preparation, researching the best lenders and rates for your situation, and efficiently managing the required paperwork.
Instead of only asking, “When can I apply for a mortgage,” also ask, “When do I apply for a mortgage?”
The difference is subtle, but proper preparation and planning can make a world of difference in finding the right home.