Mortgage lenders are eager to approve customers for home loans. As much as they would like to say yes to every customer, lenders must follow strict federal regulations that dictate to whom and how much they are allowed to lend. A quick online search for “how to apply for a mortgage” brings up lots of results that mostly focus on bad credit and lower monthly payments. These are relevant, but there is much more information needed to complete a mortgage application and make an acceptable offer on a home. Sellers want to see offers backed by a lender’s pre-approval, not offers from lenders whose home loan applications will be declined because of bad credit. Lenders need to see that borrowers have:
1. A consistent history of paying their bills on time.
2. Cash for the required down payment.
3. Steady income to support the monthly payments.
Before you start an application with a lender, find out exactly what you need to bring to the appointment. In most cases, you’ll need to gather two to three months’ worth of official bank statements and pay stubs, as well as your tax returns from the past two years. Review your credit history with each of the major credit reporting bureaus (Equifax, Experian, and TransUnion) so there are no surprises when you apply. Have your government-issued identification ready to verify.
You can easily avoid making mistakes potential borrowers often commit. Though this list seems extensive, most of the necessary documents can be found in a few minutes or less. Be prepared with these instructions and your mortgage loan pre-approval will go smoothly.
What Do They Look for in My Credit History?
Your lender will look at reports from the three major credit reporting bureaus to see if you are eligible for a mortgage loan pre-approval. They will decide based on your past payment history (“good” or “bad” credit) on other obligations. The report helps lenders to see objectively if you are likely to default on your home loan payments. Home loans and bad credit usually do not mix; it can take a year or more to replace bad credit history with good credit history in order to improve a less-than-favorable credit score. You only need to bring your government-issued identification, such as a driver’s license, passport or military identification card.
Will I Need Cash for a Down Payment?
Not all home loans require a twenty percent down payment, though many of the less expensive, lower-interest options will. Your lender needs to see bank documents, such as official monthly statements (not a print of your transactions, but the statement your bank issues monthly) from checking, savings, certificates of deposits, brokerage accounts, and retirement accounts.
Be ready to show verification of all deposits. All funds must be traceable to a legitimate source. Cash deposits cannot be used as part of your qualification. Gifts from someone close to you may only be used to help with closing costs and down payment if the giver can provide proof of its source, just like your own deposits. The bank will require a bank statement from the giver’s account and proof that it was given to you, such as a copy of the check. If the giver is unable or unwilling to provide this information, the gift will not be considered as part of your application. If you were counting on these funds to qualify for a certain loan amount, you may not be able to proceed.
Can I Afford the Payments Long Term?
Having enough verifiable assets to put up a significant down payment is a good start, but you also must prove steady income to support the monthly payments required by a home loan with a span of fifteen to thirty years. Remember “2-2-2” when collecting the information needed to apply for a mortgage loan:
– The last two years of W-2s from any income you are using to qualify.
– Your last two years of tax returns (federal and state)
– All your pay stubs from the last two months.
Include all attachments and accompanying documents for your tax returns. If you are paid on a schedule other than monthly, go back an extra pay period to ensure you cover two full months of pay history. Even if you receive your pay via electronic deposit, your company is able to provide you with this information. The payroll transaction on your bank statement may not be sufficient documentation for the lender. You should also include your current employer’s contact information so the lender can call them directly to confirm your employment.
Ready to Apply!
A little organization and planning makes gathering the information needed for a mortgage application much simpler. You have access to most of the requirements in your wallet, smartphone or computer. Bank statements, pay stubs, tax returns, and other requirements are easy to email to a lender; don’t worry about carrying a jumbled folder of paperwork around. Contact your lender early in the process and get their requirements for a mortgage loan. Come prepared for your bank appointment. It’s as easy as “2-2-2”.