Now that you have found a home you admire, you are ready to submit your mortgage application. What follows? An inventory of documents is one of the first things lenders will request; therefore, organizing your paperwork in advance is crucial. These documents provide mortgage underwriters with information about your financial standing and other relevant factors so they can determine whether you qualify for a mortgage. To make things simpler, here is a summary of everything you need to know to be prepared for the application process:
1. Tax submissions
Mortgage lenders are concerned with your entire financial situation. You will likely be required to sign Form 4506-T, which authorizes the lender to request a copy of your tax returns from the IRS.
Lenders typically require tax returns from the previous one to two years. This ensures that there are no significant year-to-year fluctuations in your annual income and that it corresponds with the earnings reported on your pay statements.
2.W-2 forms, pay slips, or other income documentation
Lenders could request your most recent pay check records. Both pay stubs and tax returns can help them comprehend your current financial situation and financial health.
Lenders typically require evidence of additional sources of income, such as alimony or child support payments, Social Security benefits, investment or rental income, and proceeds from a side business or job.
Your lender may request proof of your income through 1099 forms, direct deposits, or additional documents.
3. Financial documents and other sources
To determine your risk profile, lenders may examine your bank statements and other assets. This can include your savings and insurance policies, such as life insurance.
Lenders frequently require these documents to affirm that you have several months’ worth of mortgage payments available in the event of an emergency. In addition, they confirm that your down payment did not appear out of nowhere and has been in your account for at least a few months.
4. Credit history reports
Lenders commonly obtain your credit report with your verbal or written permission to evaluate you as a borrower.
Your credit history and scores influence the type of mortgage loan you may qualify for.
Here, you will find all the information you require regarding credit requirements for various loan types.
Government-sponsored mortgage programs do not include conventional mortgage financing. To qualify for a traditional loan, you will likely need a FICO® score of 620 or higher. In addition, to qualify for a competitive interest rate, your credit score may need to be in the mid-700s.
• FHA loans – To qualify for one of these government-backed loans, you must have a credit score of at least 500, determining how much of a down payment you must make. With a credit score between 500 and 579, a 10% down payment is required. You could only make a down payment of 3.5% if you scored 580 or higher. However, consider that lenders can add stricter standards to the basic FHA loan guidelines so that the standards can be higher in some instances.
• VA loans – Since there is no minimum credit score requirement for VA loans, lenders can determine their criteria. When you apply for a VA loan instead of a conventional loan, lenders may be more lenient with low credit scores.
The USDA does not mandate a minimum credit score for loans, but lenders may establish their own.
Jumbo loans – Due to their tremendous amounts, they typically have more stringent credit score requirements than standard loans. You may need a low to middle 700s or higher score to qualify.
5. Gift vouchers
Your family and acquaintances may lend you money to buy a house. If so, you must confirm in writing that the funds are a gift and not a loan by composing a gift letter.
In the documentation, both their relationship to you and the value of the gift should be specified.
The documentation should include the following details:
• A statement that the donor does not hope repayment or anything else in exchange; • Your signature and the donor’s signature, along with the date; • Your relationship to the donor; • The amount of the gift; • The date you received the money.
6. A photograph
You will probably be required to present a photo ID, such as a driver’s license. This is only to verify that you are who you claim to be.
7. Rental heritage
Some lenders will require proof of on-time payment history from buyers who do not presently own a home. Verify that they need an entire year’s worth of cashed rent payments.
They could also require your landlord to provide evidence that you paid your rent on time. If you have a short credit history, your rental history is paramount.
