What Do You Need To Show To Get A Mortgage: Everything You Need To Know About Applying For A Home Loan
Owning a home today isn’t as easy as it once was – mortgage policies are stricter now than they had ever been! If you want to purchase a home for yourself, then you will need a combination of patience and financial literacy to successfully come out of the other side unscathed.
If you’ve decided that you’re ready to begin this process, then look no further! This quick guide should give you everything you need to know about the basics of navigating the mortgage system. We’re going to answer questions such as “what do you need to show to get a mortgage” and “what are the steps for applying for a mortgage”.
Mortgage Application Requirements
Applying for a mortgage isn’t like applying for a job. You will need to prove to your potential lenders that you are trustworthy and responsible with your income. This will require extensive documentation that proves you can make (and actually afford) your monthly payments. The following are just some of the more common documents that you may need to provide to banks when you apply for a mortgage.
Mortgage Application Form
There are many different variations of mortgage application forms. However, one of the most commonly used forms is the 1003 mortgage application form from the Federal National Mortgage Association (Fannie Mae). The form itself asks for a significant amount of information, so it’s best to have them all ready before filling up the form.
The 1003 mortgage application form will need you to provide the following:
Borrower’s information (This includes all your personal information, the type of loan you want, your social security number, and your employment information.)
A list of all your assets (bank accounts, retirement accounts, stocks or bonds, regular income)
A list of your liabilities (credit cards, student loans, car loans, personal loans)
Information about the property you want to purchase (address, loan amount, possible rental income if you’re purchasing with the intention of renting it out)
Declarations (Will this be your primary home? Do you have any lawsuits filed against you?)
Form W-2 officially called the “Wage and Tax Statement”, is an Internal Revenue Service (IRS) tax form that is used to report the wages (and the taxes withheld from them) given to anyone who is regularly employed. Lending institutions use this form to get an idea about your income. As much as possible, prepare your W-2 forms for the past two years.
Complete Bank Statements For The Last Two To Three Months
Bank statements are pretty easy to find, especially since most banks provide you with electronic versions that you can print directly from your home computer. Your bank statements show all the activities (withdrawals, payments, deposits, etc.) your specific bank account was involved in. If you have multiple accounts, you will need to get copies for each one.
Proof Of Income
Payment stubs or paychecks are used to show your potential lender how much income you make in a given pay period. This also provides them with details about your employer or your business situation. Keep in mind that most lenders will require your most recent pay stub. If possible, provide them with one that is dated within the last 30 days.
Personal/Business Tax Returns For The Last Two Years
Copies of both your personal tax returns and business tax returns are usually required when applying for a mortgage. These forms report your income, expenses, and other pertinent tax information. Provide your lender with all the pages and relevant schedules. As much as possible, make sure that you provide the tax returns of all of your significant sources of income for the last two years.
Most Recent Profit/Loss Statement
If you’re self-employed, then you’ll still need to provide the lender with official documents that show your financial activities. A copy of your most recent quarterly or year-to-date profit/loss statement should be provided alongside other proof of income documents.
Things You Need To Know Before Applying For A Mortgage
Getting a mortgage and eventually owning a home is a long and complicated process that doesn’t just happen overnight. You should only begin the process when you’re absolutely sure that you are ready. Here are just some things you need to know about yourself before you even print out an application form.
Your Credit Score
Your credit score is a numerical expression that gives potential lenders an idea about how trustworthy you are with credit. The credit scores of individuals in the United States are created by three main credit bureaus: Experian, Equifax, and TransUnion. These credit bureaus analyze your financial situation and borrowing habits to come up with a number between 350 and 800. The higher the number, the better the score.
Since almost all credit institutions will check your credit reports before approving a loan, knowing your score beforehand will give you an idea about how likely it is for you to get rejected or accepted. A credit score in the range of 670 and above is generally considered good, while anything below that is considered bad. Having a lower credit score might mean that you will only qualify for sub-optimal interest rates – if you even qualify at all.
You can easily access your credit reports online. If you have any credit cards, most credit card companies should also be able to provide you with your credit score.
Your Actual Financial Standing
Before making any loan commitments, you have to ask yourself: can I actually afford this loan? Calculate all your available assets and income. Make a table of your monthly expenses to see just how much disposable income you will have left to allocate into monthly home loan payments. Will you still have enough leftover to put into your retirement savings? Do you have a safety net in case you experience an emergency? What costs can you cut?
Getting an idea about your financial standing will help you look at yourself the same way banks do. If it looks like you’re barely going to make your payments, then it might mean that you still aren’t financially ready to take on a home loan.
Your Overall Budget
Once you’ve calculated your available assets, you should then also come up with a strict budget plan. Salesmen and real estate agents will try their hardest to get you to stretch your budget as far as possible. You should come up with a figure of how much you’re willing to spend in total and how much you can afford to spend on loan payments per month. These figures will guide you in choosing both your property and your loan terms.
Steps For Mortgage Application
The mortgage application process is long and intimidating. However, it isn’t actually all that difficult to navigate if you know what to expect. Here’s a shortlist of the steps you will have to accomplish when applying for a mortgage.
Fill out an application: Once you’ve chosen a property, you can begin filling out your loan application. You can fill up multiple applications and send them out to multiple lenders to allow you to compare their offers later on.
Review your Loan Estimates: Once you’ve received Loan Estimate forms from all the banks you’ve applied to, you can begin comparing their offers. Ask questions if there are things that are unclear.
Choose a Lender: After comparing offers, you should then decide on which one you want to take. Make sure that you choose the bank or institution you feel is the most trustworthy and responsive.
Processing: This is the part where everything you submitted will be checked and double-checked to verify authenticity. You should expect a lot of questions and document requests from the lender during this entire period. Expect to wait two to three weeks.
Underwriting: This stage of the process is when your value as a potential borrower is evaluated. The underwriter will judge the risk of lending you money for the specific property you want.
Loan Is Cleared: When everything is done, you will (hopefully) receive a message telling you that your loan is cleared. You will receive a Closing Disclosure which will have all the final terms of your loan. Compare this to your Loan Estimates form to see if anything might have changed.
Tips On How To Improve Your Chances Of Getting Approved
Pull your credit score up by paying-off debt and always making your payments on time.
Have cash-on-hand. Try to have enough ready to fund at least 20% of the down payment.
Save up enough income to pay for at least two months of mortgage payments in the event of an emergency.
Build a good record of employment because potential lenders will want to see stability. Having at least two years of stable employment will make you a more attractive borrower. Try to put off changing careers in the meantime.
Get a co-signer or co-borrower.
Gather all your documents (tax returns, bank statements, etc) beforehand and put them all somewhere easily accessible. Scanning them and putting them on a drive might help.
Applying for a mortgage can be confusing and a bit nerve-wracking. Fortunately, knowing what you need to prepare beforehand is often enough to get you through the entire process without a hitch.
Are you having difficulties with applying for a mortgage? Wesley Mortgage, LLC can help you every step of the way. Contact us today to learn more about how we can assist you!