Mortgage Documents Required for a Home Loan
Buying a home is typically the largest purchase a person will ever make – which means there’s a lot of paperwork involved. Because of that, the mortgage application process can feel daunting and confusing at times.
At a glance, the required documents might seem like a lot! But don’t stress out; with some careful planning you can go from confused to confident ASAP.
In this blog post we’ll explain what documents are needed when applying for a home loan so you know what to expect during the mortgage process!
The View from the Mortgage Lender
While the process of buying a home is a BIG DEAL for home buyers – the truth is, it’s just “business” for mortgage lenders. Lenders loan billions of dollars every year to help people purchase real estate. With that – it’s important to realize that when a lender issues a mortgage approval – it means that they have agreed to invest in YOU, the borrower.
They are essentially giving you money for the purchase of a property that they have never seen – all based on the promise that you will pay it back monthly.
Mortgage lenders are looking for home buyers who have steady employment, good credit histories and enough income to cover the monthly payments. They will also want to get a better picture of the borrower’s financial situation and review any documentation showing proof of those factors.
To help them make this determination, various documentation about the borrower, the property and the local real estate market is required and analyzed by lenders in an effort to determine if they should issue a loan or not.
In summary, the documents required for a home loan include proof of employment and income, bank statements, existing debt accounts or credit cards, asset ownership proof such as 401(k) or IRA documents, and an appraisal of the property.
Taking these steps before applying for a mortgage can save time and energy in the long run! Good luck with your application!
Understanding the Lingo – Basic Mortgage Terminology to Help You Get Started
If you’re a first-time home buyer, the world of mortgages and home loans can seem daunting. With all of the terminology thrown around, it’s easy to feel overwhelmed. But fear not! Understanding mortgage terminology is crucial to getting started on the path to homeownership.
Terms like “down payment,” “closing costs,” and “points” may seem confusing at first, but once you break them down, it’s much easier to understand what you’re getting into. By familiarizing yourself with the language of mortgages and home loans, you’ll be better equipped to make informed decisions about your future home purchase and to determine which loan programs are right for you.
So don’t let the jargon scare you – take the time to learn the lingo, as this will help you communicate effectively with your loan originator and understand the requirements of each document.
Getting the Basics in Place – The Documents You’ll Need Before Applying
Before you can begin the exciting process of searching for your dream home and applying for a home loan, it’s important to make sure you have all the necessary documents in place that you will need for the initial analysis.
Your mortgage lender will require specific documentation in order to process your mortgage application and enable you to secure a home loan – and these can be different depending on whether you have a salary with W 2s or if you’re employee or self employed.
These mortgage documents may include items such as a copy of your most recent pay stubs, W-2 forms, federal tax returns, bank statements or other cash reserves, and copies of existing debt accounts or credit cards.
Lenders may also ask you to provide proof of asset ownership such as a 401(k) account or IRA documents. In addition, in most cases lenders require verification of the value of the real estate being purchases – usually in the form of an appraisal of the property – usually provided by an appraiser hired by the lender – in order to determine its market value before agreeing to give out a loan amount.
By reviewing and preparing these documents carefully before applying for a mortgage loan, you can help ensure that you will qualify and make the process as smooth as possible. income verification, tax returns, and bank statements.
Get Pre-Approved for a Mortgage FIRST
You may also want to consider obtaining a pre-approval letter from a reputable mortgage broker such as The Wholesale Mortgage Firm, as these letters will help identify you to prospective home sellers as a qualified buyer who has already been determined to be eligible for a mortgage.
A pre-approval is different than a mortgage pre-qualification in that with a pre-approval, a lender will typically verify your credit-worthiness, your basic income and identify one or more of the loan products you would receive mortgage approval for.
A good mortgage broker (like The Wholesale Mortgage Firm) will also calculate your mortgage payments and help you determine how the affordability for each home you look at in the home buying process.
In short – a pre-approval not only helps distinguish your buyer qualifications to a seller compared to others without it, but it also will help streamline the overall mortgage process when you are ready to pull the trigger.
Continue reading to learn more about the specific types of documentation most lenders will require to issue a loan approval.
Income is a Big Factor – What Proof of Income is Needed for Your Mortgage Application
One of the biggest factors that affects your mortgage application is your income. Lenders carefully examine your income to ensure that you have the financial means to pay back a home loan. The debt-to-income ratio (commonly referred to as a DRI ratio) is also considered, which compares your monthly debt payments to your income.
To prove your income, lenders usually require income verification, which can include your income tax returns, w 2s, pay stubs, investment account statements, child support, profit and loss statement (for business and self employed income) and other documentation. Depending on your employment status, lenders will also want to verify your employment history with at least 2 years of tax returns.
Without sufficient proof of income, your mortgage application could be denied. So, it’s important to gather all the necessary documents and meet the lender’s requirements to increase your chances of getting approved. Remember, your income is a crucial component in the mortgage process, so make sure to have it in check before applying.
Credit Report – How Your Credit Score Impacts Your Mortgage
Your credit report is more important than ever when it comes to securing a mortgage. Your credit score is a crucial factor that lenders will consider, and it can have a significant impact on the interest rate and terms of your mortgage.
If your credit score is on the lower end of the spectrum, you may have trouble securing a mortgage or be subject to higher interest rates. However, don’t lose hope just yet!
There are ways to repair your credit and improve your score and mitigate bad credit history – sometimes in under 30 days. Efforts such as making on-time payments, paying down debt to attractive ratios, and disputing any errors on your credit report can all help get your credit score up and help you get a mortgage.
In some cases you may also report your successful rental history of on time rent payments to the credit bureaus as well.
Taking these steps can help you get the best mortgage credit possible and ultimately lead to your dream home. The Wholesale Mortgage Firm will also assist you in reviewing your credit history and devising a plan to improve your score – all for free. Contact us here for help.
Bank Statements & Assets – Proving That Money is Available for a Down Payment and Closing Costs
Buying a home is a big step, and one of the biggest hurdles is coming up with enough cash to cover the mortgage down payment and mortgage closing costs. It’s important to prove to the lender that you have the funds available (down payment and closing costs), so they know you’re financially stable and able to make your payments.
Cash assets can come from a variety of places, such as savings accounts, account statements, investment accounts, or even gift funds (with a gift letters) from a family member, spouse or partner or close family friend.
Sometimes you may also use assets in joint bank accounts, retirement accounts, from a settlement statement (if selling another asset) and other sources readily available in the near future.
Keep in mind that these are only some of the mortgage documents you’ll need. The exact type and amount of documentation required will be determined by your specific situation and employment history.
The key is to have it readily available and easily accessible. So, whether you’re just starting to save for your down payment or ready to make an offer on your dream home, be sure to have a plan in place for proving your cash assets.
Property Documents – Appraisal, Title, Survey and Homeowner Insurance
When it comes to buying a property, there are four important additional documents that the best mortgage lenders will require to verify that the purchase price of the property is fair and at market value. Those are the property appraisal, property title, home survey, and property insurance.
The Property Appraisal
The property appraisal gives you an estimate of how much the property is valued at when compared to other similar properties that have sold within 6-12 months in the same area. While it is not always required with every property purchase, when it is – the appraisal is one of the first documents ordered by the mortgage broker, as they can take up to 3 weeks to complete.
The Property Title
The property title request is initiated by the broker as part of the application process after you are under contract to purchase a home. With it, a title company will confirm that the property is legally owned by the seller and provide an estimate of fees in order to legally transfer the title to you. The fees will be divulged in the loan estimate and other closing documents you’ll receive throughout the process.
The Property Survey
The property survey is typically ordered in conjunction with the title documentation. It’s role in your set of mortgage documents is to confirm that specific boundary and parcel of the property you are purchasing.
With a good an complete property survey, you’ll also be able to determine if there are potential issues relating to setbacks, dwellings, encroachments, right of ways or other elements associated with the property in question.
The Property Insurance
Lastly, property insurance protects your investment and is a requirement of most loan lenders. Home insurance quotes are typically obtained and shopped (either by you, your Realtor, or your mortgage team) at the beginning of the process so you know what the monthly payment will be for this services.
In addition to the homeowner insurance policy, other documents needed from the insurance company will be the policy binder, invoice and declaration pages.
Summing it All Up!
As you can see, applying for a home mortgage (and the documents needed for the loan itself) can seem daunting and overwhelming. When we consult with our clients during their mortgage preapproval process, many are surprised to learn of the documentation need for conventional loans, fha loans, va loans and more.
While all loan products and programs will require some form of bank statements, pay stubs, federal tax returns, w 2s, driver’s license and other assets information – the complete list of closing documents truly depends on YOU, the borrower.
To manage the complexity of applying for a mortgage loan successfully, it is best to work with professionals that understand the current real estate market and are knowledgeable on the various requirements of lenders as well as those requirements for specific properties and within specific communities.
To that end, The Wholesale Mortgage Firm provides guidance on all of these items both internally and with the help of our associated real estate brokerage, Blue Sun Realty. Let us help you on your journey of owning a home – Contact us now!