Need to know how to prepare for a home loan? The first step in getting ready to purchase a home is making sure that your credit is up to par; otherwise a home loan could be out of your reach. To put it simply, the worse your credit score, the more you will pay in fees, closing costs, higher PMI costs and interest.

Here are the five factors that make up your credit score:

prepare for a home loan

1.      Payment History: 35%

Are your payments on time? Do you have delinquencies or charge-offs? Paying off your debt on time and/or in full will have the greatest positive impact on your credit score.

2.       Outstanding Credit Card Balances: 30%

This factor is the ratio between your outstanding balance on your credit cards and your available credit. In a perfect world your balances would be zero, but in reality, life happens.  Your balances should definitely be below 30% of your available credit limit for a period of 3 or more months prior to the purchase of a home.

3.       Credit History: 15%

How long have you had your credit history established? Someone with a longer past will always be a better candidate for a home loan.

4.       Type of Credit: 10%

Rather than just having credit cards, you have auto loans and/or a mortgage mixed in.  Always having a couple of different open accounts shows responsibility.

5.       Inquiries: 10%

Each inquiry can damage your score up to fifteen points, so be careful with why you are having your credit checked. Note: self inquires have no impact on your score.

How to Prepare for a Home Loan


Many think that their credit score is correct, but there may be items hiding on your report that you have not seen before, including mistakes from credit bureaus or errors from a creditor. Increasing your score or correcting these mistakes can take months or even years. This is something that you should start as soon as possible.


Ordering your credit report is the first way to spot if your credit needs fixing. By law you are able to order a free credit report from Experian, Equifax and TransUnion once a year. Go to to order your free reports. If your report does in fact need to be amended, you need to go to the right source. Sometimes it may mean disputing errors on your report.  If so, go to and you can learn the correct steps needed to file a dispute.


The next step in obtaining a home loan is to start getting your paperwork in order. The loan company is going to want to see your last two years of tax documents, last four weeks of income statements, the prior two months’ bank statements, asset verification forms, and other personal documents. Obtaining these documents can take a while, so knowing where to look for them and having them ready is important. After all, you wouldn’t want this to hold up your loan approval process.

After you’ve completed these steps, you are now ready to find a loan officer and start your house hunting process! Good luck!

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