Whether you are a first-time home buyer, ready to upgrade to a larger home or just looking to get pre-qualified before you look, getting approved for a mortgage loan can be time-consuming and even difficult when the loan officer starts asking for the documentation they need to judge your creditworthiness. It helps to know what they will require ahead of time. That way you can begin to gather the necessary paperwork to avoid frustration.
Most people have heard that mortgage lenders base their decisions on a person's FICO score. While it does have a bearing on your approval, it deals mainly with your credit history, how much credit you have already, and how much of that credit you've actually used and owe money on. The lender is going to require proof of your assets, total income, what you owe, and how you've handled your past mortgage payments - or even your rent payment history. In order to prove this, you'll need to provide the documents and information below.
One of the first things the banks need to know are the assets you already have. Assets include things you own such as your car, expensive jewelry, checking and savings accounts, IRA's, CD's, trust accounts, or other things that provide your "worth". Usually, this is provided from bank statements, savings or cd statements, or even court documents. Be prepared to give them two or three months worth of complete bank statements for your checking, savings, or other assets.
You'll have to prove that you have an adequate and permanent income to make the mortgage payments. Lenders will require two years of complete tax returns with W-2's or 1099's. An IRS form 4506-T will need to be signed by you to give permission to the lender to get tax transcripts directly from the IRS. They will then compare the forms you provide to the IRS filings to check for any fraud. They may require documents you used to file your taxes, so make sure you keep receipts for 3 or even 7 years if you're self-employed.
You will need several months of paycheck stubs or stubs you receive from other income. If you receive child support and include that as part of your income, you will need proof of your child's age as well as any court orders concerning it. Social Security or Disability payments will have documents from the government showing payment amounts. Some income can be shown on your bank statements, and the lender will probably require a statement from your employer. Whatever type of income you claim will have to have legitimate documentation.
DEBTS YOU OWE
You will need to sit down and make a list of every debt you owe for credit cards, car loans, student loans, alimony, or child support. The lender will compare this list to your Credit Report and will question any discrepancies. Your bank statements will also provide information about any monthly or repeat payments, so be prepared for the lender to compare all your documentation.
Your FICO score is also affected by your total debt. If it is lower than it should be, you need to pay off any unnecessary credit cards or lines of credit in the months before you apply for a mortgage. Do not buy a new car or have any other large expenditures before you try to buy a home. Use cash for your purchases as much as possible. The lower your debt to income ratio is, the better you will look to a lender.
PROOF OF RENT OR MORTGAGE PAYMENTS
You will need to provide copies of canceled checks for your rent, or statements from your prior mortgage to show the lender how you've paid in the past. A letter from your landlord may also confirm that you've paid your rent satisfactorily in the past.
A quick list of required documents may help you in gathering what you need.
Giving yourself time to gather the necessary paperwork will help to speed up your loan approval and avoid surprises. We hope this list will make your dream of buying a home come true!
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