When Is the Best Time to Apply for a Mortgage?

If you are planning to become a homebuyer soon, you probably want to know when to submit a loan application. So, when is the best time to apply for a mortgage?

The best time to apply for a mortgage is in the first few days of a month because you’re more likely to get better service then. However, your credit score, income, and financial situation are all included in determining your mortgage rates. Therefore, the right time for applying is when they are the best they can be.

Did you know that more than 60% of Americans carry a mortgage? Learn how to get the best deal for yourself as well as how to make the approval process a better experience.

The Right Time to Apply for a Mortgage Is at the Beginning of the Month

The right timing for submitting your request is connected to the business cycle your lender has. The good news is that many creditors and companies follow the same principle:

Lenders are looking for new deals at the beginning of each month,
Getting documentation and loans ready is reserved for the middle of the month,

The end of the month is reserved for closing loans (as many as possible).

That doesn’t mean that you must apply at the beginning of a month, just that you’re bound to get better service if you do so. It’s the period when lenders are also seeking new borrowers, so they will be more than willing to help you go through the home loan possibilities and rates with them.

On the other hand, mortgage brokers and loan officers need to close loans and meet monthly targets before the month ends. Did you know that a mortgage note needs to be signed in the same month it’s composed? Therefore, creditors can’t provide you with the same attention they would if you applied earlier.

Simply put, lenders will acquire applications whenever a buyer decides to deliver them. However, different times of the month will most likely dictate the priority of your application and the number of days needed for your request to be processed.

Gathering Necessary Documentation Is Essential Step Before Applying

If you want to shorten the period between applying and getting an offer, it’s always smart to have all financial documentation already prepared. So you can speed up the process, ensure that you collect:

Tax returns,

Pay stubs (or some other proof of income),
Bank statements,
Investment assets documentation (stocks, saving accounts, and the like),

Insurance paperwork,
Permission for a credit inquiry (sometimes must be written),
Gift letters (confirmation that you’re not getting a third-party loan if your friends and family want to help you buy a home),

Renting history (if your credit history isn’t extensive, some creditors will demand proof that you’ve paid the rents and bills regularly),
ID document.

Gathering these documents in advance and sending them all together is bound to speed up the process and, thus, improve your experience.

Ensure You Have Qualifying Credit Score Before You Start With Application Process

To improve the chances of getting approved and being presented with better rates, you need to have at least a good credit score. Before making an offer, each lender will go through your score to see if you’re suitable for the loan you want.

Remember – the better score you have, the less of a risk you represent for a creditor. Luckily, your creditworthiness can improve if you pay off debts, don’t miss new payments, don’t get new loans, and so on. If there is a possibility for it, it’s always better to improve your score before applying.

When making a credit inquiry, almost all lenders will use FICO scores – three-digit numbers that can range from 300 to 850.

The table below will clarify the process:

Data categories	Main question	Importance in the final calculation
Payment history	Do you pay your installment regularly?	35%
Amounts owed	How much debt do you have on all accounts?	30%
Length of credit history	For how long do you have each of your accounts?	15%
New credit	Have you opened several accounts in a short period?	10%
Credit mix	What types of accounts have you opened?	10%

Based on this report, your FICO score will be determined. A lender will then assess your request, decide if it will be officially accepted, and determine the rates and terms of your mortgage.

Your Income (and Debt-to-Income Ratio) Can Also Determine the Right Time for Getting a Loan

By assessing your income, creditors will be able to deduct if you can afford monthly payments. It’s usually considered that a person can afford a mortgage which is up to three times their income. For borrowing $240,000, for example, your income should be approximately $80,000.

One of the most important things creditors consider when deciding on an application is the debt-to-income ratio. It shows how much of your total gross monthly income goes to paying debts and other loans.

The exact percentage will vary based on your lender and the home loan you want. Generally, different financial obligations shouldn’t take more than 36% of your monthly income. That is why you need to repay as many loans as possible before applying.

Do You Have Enough Money Saved for the Mortgage Down Payment?

Not having enough money to put down can often postpone the process of buying. Note that bigger down payments mean better rates for you. Lower down payments (under 20%) will increase your monthly installments. Moreover, they often imply paying the costs of private mortgage insurance as well.

Therefore, it’s always better to wait for a little while and save up more money to put down before applying. The other solution is getting financial help from a friend or family member – just remember that creditors will demand proof that the money is gifted, not borrowed.

Did You Have a Recent Job Change?

Lenders don’t want to risk missed payments, so unstable employment isn’t something they consider favorable. So, if you’ve changed jobs not long ago, you may want to wait a couple of months (or even years) before applying.

If you’ve started a different job recently due to career advancement, avoid misconceptions – ensure your creditor is notified about it.