Why Is It Important To Get Pre
Getting pre-approved for a mortgage gives a person bargaining power since they have mortgage financing already lined up and can therefore make an offer to the seller of a home in which they are interested. Otherwise the prospective buyer would have to go out and apply for a mortgage before making an offer and potentially lose the opportunity to bid on a home.
What Is A Mortgage
The term mortgage refers to a loan used to purchase or maintain a home, land, or other types of real estate. The borrower agrees to pay the lender over time, typically in a series of regular payments that are divided into principal and interest. The property serves as collateral to secure the loan. A borrower must apply for a mortgage through their preferred lender and ensure they meet several requirements, including minimum credit scores and down payments. Mortgage applications go through a rigorous underwriting process before they reach the closing phase. Mortgage types vary based on the needs of the borrower, such as conventional and fixed-rate loans.
Documents You’ll Likely Need
For all borrowers listed on application:
- Recent pay stubs
- W-2 forms from the past two years
- If self-employed:
- Year-to-date profit and loss statement
- Documents to show unpaid accounts receivable
- 1099 forms from past two years
- Bank statements for all your checking and savings accounts
- Statements for all investment accounts, including:
- Accumulated cash value from life insurance, if applicable
- Down payment gift letters, if applicable
- Alimony and child support, if applicable
- If you have income from a rental property:
- Documentation of rental income
- Property appraisal report
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I Don’t Know What To Enter For Property Taxes Or Homeowners’ Insurance
You can leave these and most other boxes blank if you don’t know what those costs might be, and the Mortgage Qualifying Calculator will generate an answer without them. The same for the inputs under Down Payment and Closing Costs, and Total Monthly Debt Payments. But your results will be more accurate and useful if you can provide these figures.
Additional Mortgage Documents For Wages Bonus Or Commission Income
If you have not been at your job for two years or longer, or have part-time, bonus or commission income, your lender may ask for more information.
If your source of funds to close lists a large deposit or shows bounced checks, you’ll probably have to come up with additional paperwork. This also applies if you earn bonuses or commissions of 25 percent or more of your total income. Here are those extras.
These additional documents may trigger requests for more paperwork. See below for situations that might require more documentation.
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Know What You Can Afford
I know from personal experience that lenders do pre-approve applicants for more than they can afford. After receiving a pre-approval letter from our lender, my husband and I wondered whether they had read the right tax returns. We appreciated the lenders generosity, but ultimately decided on a home that fit comfortably within our budget.
Dont let lenders dictate how much you should spend on a mortgage loan. Lenders determine pre-approval amounts based on your income and credit report, and they dont factor in how much you spend on daycare, insurance, groceries, or fuel. Rather than purchase a more expensive house because the lender says you can, be smart and keep your housing expense within your means.
Tips For Cosigning A Mortgage
If youre committed to being a mortgage cosigner, its best to do lots of research, prepare yourself financially and think about your decision carefully beforehand. Here are some things you should do to become a qualified cosigner to a mortgage:
- Get Your Finances & Credit Ready Dont forget, the two most important elements when trying to qualify as a mortgage cosigner are a solid income and good credit. For the highest chances of approval and lowest rates, be sure you have a steady job, little-to-no debt and a good amount of savings to fall back on.
- Watch Out For Missed Payments Missing mortgage payments is one of the worst things that you or the main buyer can do. It will not only damage your credit but lead to penalty charges and high-interest debt. Moreover, any other properties you own could be at risk if the account goes into default and the lender sues you.
- Figure Out Your Legal Rights & Responsibilities Cosigning a mortgage doesnt just affect your creditworthiness and bank account, it could have an impact on your taxes and estate too. So, it may also be a good idea to hire a lawyer for advice and extra legal protection.
- Request Access To Buyers Mortgage Information Even if you dont own the property, you should know exactly how the mortgage is being handled. Since the actions of the primary buyer can affect you too, its better to have access to their mortgage account in case you need to deal with the payments they miss.
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History Of Mortgage Or Rent Payments
Understandably, your lender wants proof you’ll follow through with on-time monthly mortgage payments. To verify this, they might ask about your current mortgage .
Current mortgage statement
If you own a home and currently have a mortgage balance, you’ll likely need to submit your most recent statement showing how much you still owe on the home. This is especially true if you’d like the ability to close on your new home before you sell the old one.
If you’re currently a renter, you’ll need to provide contact information for your landlord, as well as documentation showing that you’ve paid rent.
Documents Youll Need To Apply For A Mortgage
- Social Security numbers, or individual taxpayer identification numbers for all borrowers.
- Home addresses for at least the past two years.
- Your most recent paystubs covering at least 30 days of income
- Your most recent W-2s , or if self-employed, 1099s or K1s
- Your most recent Federal Tax Returns , including all pages and all schedules. Note: if you are self-employed, you may need to provide both your personal and business tax returns.
- Two to three-months of statements for each of your accounts: Checking, savings, IRA, 401K, credit cards, etc.
- Information on other consumer debt accounts such as car loans or leases and student loans
- Social Security award letter or pension award letter, if applicable
- Year-to-date profit and loss statements and/or balance sheets, if self-employed
- Gift letter if you are using money from parents or relatives to help cover down payment or closing costs
- Landlords name, address & phone number, if you rent
- May also need to show rent/utility payments to document payment history if needed
Depending on the type of home loan you are applying for, and your individual circumstances, you may also need:
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Getting Preapproved For A Mortgage
You can look at general requirements to buy a house on your own, and figure out if you might qualify based on your finances.
But your mortgage lender gets the final say. So when youre ready to get serious about buying, your first step is to get preapproved for a mortgage.
Some home buyers make the mistake of shopping for a property before meeting with a lender. But with a preapproval, youll know what you can afford before starting the process.
This way, you only look at houses within your price range. Plus, a preapproval letter indicates that youre a serious buyer. In which case, a seller will give more consideration to your offer.
When getting preapproved for a mortgage, contact at least three mortgage lenders to compare interest rates and terms.
Home buyers can often lower their monthly payment and save thousands just by shopping around and lowering their rate.
Whats Loan Purpose Why Lenders Need To Know
This article will explain why its important to disclose your loan purpose.
What does loan purpose mean?
Loan purpose is the primary reason a borrower is requesting a loan.
Examples of a home loan purpose:
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Documents Youll Need If You Already Own A Home
If you already own a home and are applying for a mortgage to purchase an investment property or vacation home, youll need to provide recent mortgage statements for your current home. This will show the equity in your home, along with your principal balance and monthly payment. This information will help the lender determine your DTI and whether you can afford this mortgage payment. This is especially important if you have a mortgage on your current home and this will be a second mortgage.
Basics Of Qualifying For A Mortgage
Lisett Comai-Legrand About The Author
There is a lot of misconception out there when it comes to qualifying for a mortgage loan. For instance, the notion that from the lenders perspective, loan eligibility is based only on a formula.
Although mortgage underwriters do look at a variety of different information when determining loan qualifications, it ultimately comes down to four things:
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Rental Information And Landlord Reference
Lenders want to be assured youll make your monthly mortgage payments on time. If youre a renter, youll likely be required to show that youve made on-time rent payments in the past. You may also be required to include the names and contact information for the landlords youve had in the past. This will help the lender verify that youve upheld your financial responsibilities as a tennant. How far back youll need to show payments or landlord information may depend on your lender.
What To Provide To Your Lender Or Mortgage Broker
Before preapproving you, a lender or mortgage broker will look at:
- your assets
- your income
Youll need to provide the following:
- proof you can pay for the down payment and closing costs
- information about your other assets, such as a car, cottage or boat
- information about your debts or financial obligations
For proof of employment, you may have to provide:
- a proof of your current salary or hourly pay rate (for example, a recent pay stub
- your position and length of time with the employer
- notices of assessment from the Canada Revenue Agency for the past 2 years, if youre self-employed
Your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments. This will help them determine if you have the down payment.
Your debts or financial obligations may include your monthly payments for:
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How Does A Mortgage Loan Work
When you get a mortgage, your lender gives you a set amount of money to buy the home. You agree to pay back your loan with interest over a period of several years. You dont fully own the home until the mortgage is paid off.
The interest rate is determined by two things: current market rates and the level of risk the lender takes to lend you money. You cant control current market rates, but you can have some control over how the lender views you as a borrower. The higher your credit score and the fewer red flags you have on your credit report, the more youll look like a responsible lender. In the same sense, the lower your DTI, the more money youll have available to make your mortgage payment. These all show the lender you are less of a risk, which will benefit you by lowering your interest rate.
The amount of money you can borrow will depend on what you can reasonably afford and, most importantly, the fair market value of the home, determined through an appraisal. This is important because the lender cannot lend an amount higher than the appraised value of the home.
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How The Application Process Works
Once you’ve laid the groundwork for your mortgage application, you can begin the process in earnest. Remember that by entering the housing market, you may be competing against other buyers for the same property, while at the same time negotiating your best price with the seller. In a seller’s market, that often means higher price tags and concessions, while a buyer’s market will usually result in lower costs and greater negotiation power for the new homeowner.
With the current housing market in mind and your preparations complete, use the following steps to secure a mortgage and land your next home.
Income And Job History
One of the first things that mortgage lenders consider when you apply for a loan is your income. There is no set dollar amount that you need to earn each year to be able to buy a home. However, your mortgage lender does need to know that you have a steady cash flow to pay back your loan.
Your lender will want to look at your employment history, your monthly household income and any other forms of money you have coming in, like child support or alimony payments.
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Documents Youll Need For Nonconventional Loans
The documents listed above are typically required for both conventional and nonconventional loans, including FHA loans and USDA loans. However, some nonconventional loans may have other mortgage preapproval documents.
For example, since only certain people may qualify for the VA loan , youll need to provide further documentation to verify your eligibility. Depending on the borrower, such required forms may include:
DD Form 214: This verifies your military discharge, retirement or separation, and is required for veterans. Surviving spouses must provide their spouses DD Form 214, along with their marriage license and souses death certificate.
Retirement Points Statement : This form confirms the number of credible years of service in the military, including attending drills and going through training. This is needed for discharged members, who will also need to show proof of an honorable discharge.
Statement of Service: A statement of service proves active military status for active-duty service members, or current National Guard or Reserve members. It must be printed on official military letterhead and include the service members full name, date of birth, Social Security number, entry date of duty and time lost. It may also include credible years of service, date of activation, orders activated, training status and the name of the commander providing this information.
What Credit Score Is Needed For A Va Loan
Qualifying service members, veterans and surviving spouses can buy homes with little or no down payment and no private mortgage insurance requirements, thanks to housing benefits from the U.S. Department of Veterans Affairs, commonly known as VA loans. Issuers of VA loans have some discretion in setting minimum credit score requirements, but they may accept applications from borrowers with FICO® Scores as low as 620.
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For Landlords And Investors
If you rent out an investment property, your tenants rent payments can count toward your income. This can help you qualify for the new mortgage.
For documentation, youll need to provide a current lease that shows the rent amount.
Credibles pre-approval process is quicker than most it takes just a few minutes and can help you compare prequalified rates from all of our partner lenders conveniently online.
Credible makes getting a mortgage easy
- Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
- We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
- A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.
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Automated Underwriting Systems And Documentation Requirements
Most mortgages today are underwritten by software programs. Fannie Mae lenders go through Desktop Underwriter , for example, while Freddie Mac lenders use Loan Prospector . Other lenders have proprietary programs.
Note that lenders can’t underwrite all mortgage applicants with software. If you have very little information on your credit report, or a lot of inaccuracies, humans must underwrite your application manually. If your application does not receive an “approve” decision from the software, it may get a “refer” recommendation, which means a human must underwrite it. Manual underwriting guidelines require a lot more documentation.
The great thing about AUS is that they can cut down significantly on the amount of paperwork loan applicants must furnish to secure mortgage approval. First-time homebuyers or repeat borrowers who have been out of the loop may be surprised at how little documentation they must come up with today.
Some lenders even let you just submit a picture of your paycheck and bank statement via text or email.
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