Unless you just won a lottery, inherited a windfall, struck it big in business or landed a lucrative job, you will most likely need a loan to finance the purchase of your home. Before you begin hunting for your ideal house, you need to first evaluate your prospects of qualifying for a mortgage. If you have a solid income, good credit score and savings in your bank, getting your mortgage pre-approved won’t be a bother. However, if you happen to run your own business, has poor credit or little cash, it pays to begin prospecting for the mortgage a year before you start looking for the house to buy.
Documents Needed When Applying for Mortgage
You might be surprised to know that a lot of documentation is required when applying for a mortgage. These include:
● Tax Returns and Financial Statements
You will be required to provide your full tax returns and financial statements stretching back several years, preferably two to five years, depending on whether you are self-employed or employed. Some lenders may also request for your retirement or investment accounts.
Banks and other lenders want to satisfy themselves that you are able to draw on your cash reserves to pay for any mortgage payment that falls due. They are also wary of dealing with you if financial statements and tax returns indicate that your household income fluctuates wildly every year. You can obtain your past returns using Form 4506, Request for Copy of Tax Return on IRS website.
● Photo ID
It is a mandatory requirement to provide your photo ID when applying for a mortgage or any personal credit facility.
● Latest Pay Stubs
If you lack any copies of your most recent pay stubs, request your employer’s human resources to provide them.
● Evidence of Homeowners Insurance
Lenders are hesitant to give out mortgage to applicants who fail to demonstrate that they have taken out homeowners insurance on their new home.
● 1099 Forms
Banks and other lenders will require you to provide 1099 forms if you are self-employed. Such forms indicate the amount of money you were paid by various clients in your capacity as an independent contractor. All customers who pay you over $600 are compelled by law to mail you 1099 forms.
● Cancelled utility or rent checks
Banks may ask you to provide utility or rent checks if you are a first-time home buyer as a proof that you always pay your bills when they fall due on time. If you haven’t paid old bills and this has effected your credit rating, it is a good idea to contact a bad credit mortgage brokers.
● Proof of your Job Position and Salary in Writing
Should the lender ask for this document, ensure it is written, signed, stamped and dated on your company’s letterhead. The bank could contact your employer during the application process to satisfy itself that you haven’t been sacked since you requested for the mortgage facility.
● Gift Letters
These are letters written and signed by a person providing you with funds to cover for your mortgage down payment or application costs. The person should state such funds are given as a gift and hence won’t be claimed back.
● Signed Sales Contract
The contract for the purchase of your home is required, otherwise, the bank or the lender will consider you as applying for a mortgage preapproval.
Before You Apply for the Mortgage, Consider these Tips
Now that you have all the documents ready, you should ensure that your credit score is good enough. Pay your bills on time and chip away any outstanding debt by paying more than the minimum monthly payment. If you don’t have it, save for the down payment. The minimum required is at least 3%, though 20% is ideal.
Before you begin house-hunting, obtain a mortgage preapproval. It helps you know how much money you are eligible to borrow to buy your home. In most cases, it is usually three times your annual gross income. You should research on the various types of mortgage available, such as a fixed-rate mortgage or a variable-rate mortgage. If you want to purchase a home you plan to stay in for 10 years, go for an adjustable-rate one. Jumbo loans are also available if you wish to purchase a luxury home.
Finally, if you are unsure of the process, consult a professional. The U.S. Department of Housing and Urban Development routinely issues a list of approved house counselling agencies in your state.
Finally, Shop and Negotiate
Once you have selected the house that you want to buy, visit several lenders and compare them based on their financial stability, customer reviews, and charges. Ideally, you should sign with a lender who is financially stable, offers you value in terms of costs and treats you well. The customer review aspect is very critical because you may need a mortgage refinancing in future and you don’t want to find yourself dealing with a nightmare in form of bureaucracy or insensitive customer representatives.
