Like all things that require you to go through a lengthy process, applying for a mortgage can seem a bit frightful. The most difficult part of the entire process is getting together all of the papers that you will need and various other proofs. It takes a lot of different documents to get a home mortgage. If you do not happen to be one of those individuals that file away everything and keep immaculate records you might be in for a bit of a trial.
Documentation You Will Need
1. Verification of your income – This will include w-2 forms and tax forms for the past two years. For people who are self-employed this can be an even bigger headache. You will have to bring in two years of profit and loss statements. Any additional income will also have to have proper documentation. For single mothers any alimony or child support payments will be considered as income. If you are employed bonuses, commissions and interest income on investments must also have documentation.
2. Assets – The names and addresses of the banks that you use and all your Checking and savings account information will be carefully scrutinized. You must show at least 2-5 months of these statements. If you have stocks, bonds or other investments you will need proof of their worth. If you own vehicles you will need titles for all of them that are paid off.
3. Purchase contract – If you make a deposit of any type to a seller, this is usually done to show how serious you are about making the purchase, bring in that contract and any pertinent information. A copy of the canceled check should also be among the papers you bring in.
4. Bills – Bring in proof of all of your current debt. This includes all credit cards, outstanding student loans, furniture store loans, any loans where you are the co-signer. This should also include the name address and phone numbers of the creditors. If you are not established and cannot show a proper payment history you may use canceled checks for rent, utilities and any other payment obligation that you have.
5. Down payment information – The lender will also want some information on the origin of the down payment. For instance if it came from savings and/or gifts from relatives. In the event some of the money came from gifts you will notarize documentation from the person or persons who made the gift.
In order to make the process go smoothly and to speed up the works you should be prepared to show any and all of the above mentioned documents.
Before applying for a loan you should check your credit report. You credit file will be a huge factor in the determination process. You can read our credit repair guide if you want more information about fixing your credit. Knowing your credit history before hand will give you time to clear up any outstanding debts an increase your score before attempting to get the mortgage. Individuals have a right to see what is in the reports from the credit bureaus and to have it explained to them. The three credit agencies are Experian, Equifax, or Transunion (the most popular is Equifax).
Now there are really two ways to check your credit. You can check your credit online for free which is by far the most convenient (and pretty much instant) or you can do it the old fashion way and actually mail all 3 credit unions a written letter request (snail mail folks, NOT email) for your credit history. By the fair credit act, all three agencies must send you your free credit report once a year when they receive the written request.
Knowing what your credit history looks like will give you an opportunity to formulate intelligent answers to questions that may be asked about it.
How A Mortgage Payment Is Figured
Lenders start with the basic question of how much you are asking for. The loan you will be offered will be determined by the estimated value of the property you want to purchase along with your current financial position. You and the lenders own real estate appraiser will supply the numbers used to determine your loan amount. The most important opinion in this mix is that of the appraiser.
You can expect to get about 80-90% of the appraised value of the property. That is why you have to have a sizable down payment. If the amount being offered is less than you had planned you may have to increase your initial down payment.
There are certain ratios that are used to calculate the amount you will pay each month. This is called your debt to income ratio. This is the amount of your gross income that you have available to spend on housing. The smaller the current debt the better you will look for this portion of the process. The things that you they include in this calculation is the proposed mortgage payment, taxes on the property, and homeowners insurance. Once they have made this determination they will include any outstanding debts you may have. The objective is that your housing cost should not exceed 36% of your income.
Asking the lender how long the process should take you will hear anything form 30 days onward. Depending on the type institution that you are applying to it will take more or less time.
There is a very real possibility that you may be turned down by several companies before finding one that will work with you. For each denial you should request a written statement of the reasons for the denial. You can use this information to repair these areas of concern before you apply for the next one. It may also give you a framework for establishing an alternative with them as well.
Here are a few of the reasons that will cause a denial of your application.
- Insufficient down payment
- If the appraised value is less than you are asking for. If other homes are of a similar value you may need to request a second appraisal.
- A bad or insufficient credit history can be a major factor in the decision to accept or deny your application. They may allow you the opportunity to explain any special circumstances that have caused the ripple in your credit history.
For the most part all mortgage applications are the same. It really doesn’t matter if you apply online or in person the questions will be the same. The application starts with the basics:
- Email address
- How long you have lived at your current residence
- Social Security Number
You may also need this information for any other person involved with the purchase of the home.
Next the questions become a bit more personal.
- Do you rent, own or are staying with relatives
- Who do work for
- How long have you worked there
- If less than two years names, addresses and telephone numbers of those people who you formerly worked for
- What assets do you own? How much it’s worth
- Your debts. Who you owe and how much
- If you have filed bankruptcy in the past ten years
- I f your bills are current, and if not how far behind are you
- Whether or not you are a first time buyer
- Is this primary residence property or income property
The application it self is a lot like a booklet. You will be expected to have documentation for any statements you put in it. you can find a sample loan application to review online at http://www.gatewayfunding.com/orapp.html, this way you will at least be familiar with what is being asked of you and how the form will look.
Proper Mortgage Application Form
The application may have some cosmetic differences but as long as it says Form 1003 on the bottom it is a legitimate application. You should fill in all blank areas on the form. Follow the checklists and you will be well on your way to being approved for a mortgage loan.
The debts that will show up on the application will be generated from your credit report. This will include liabilities and payments that are listed in the credit report. That is why you should look over the credit report before you apply to see if anything on it might adversely affect your chances of getting alone.
Not that you will hear them labeled as such but there are a few fees associated with applying for a mortgage. Some states have outlawed the practice and that is why you may here them called anything but a fee. These are usually referred to as a lock fee or deposit. There are however a few legitimate fees, one such fee is the appraisal deposit . this is asked for because it just makes good business sense that since the lender will have to pay the appraiser up front. If your loan does not go through they would in essence loose money on the entire operation.
If you are applying online a lock in fee or application fee is to considered suspect. Most often they will want the payment made using a credit cared and it is non-refundable. It is set up so that you cannot even do a charge back on it.
Online Application Schemes
If you are considering applying for a mortgage online and are asked to pay a lock in fee or deposit it usually all they really want. These phony mortgage companies are really just a way to bilk unsuspecting people out of their money. This is how they make a living. 500-600 dollars at a time, while they either disappear or continue to drag out the process. The loan never closes and you are out that much money. To protect you, read the disclosure statement if there is not one present then do not submit your credit card information.
The Difference in Pre-Qualification and Pre-Approval
Knowing the difference between the two can make a lot of difference when it comes to buying a home. They may seem to be the same but to a lender they are certainly looked at on a different level.
Pre-qualification is what happens when you meet with a lending institution to discuss the possibility of buying a home. They will do an overview of your income and expenses then give you a rough estimate of a loan amount you might qualify for.
Pre-approval on the other hand is when you have given all the appropriate information to the lender. He then does his thing by scrutinizing your assets, income and credit history. Once he determines if you are credit worthy he then will actually put an offer on the table. These are only done when you are actually in the market for a house or have seen one you are intent on buying.
Armed with statement of pre-approval you are now in the driver’s seat. This means you can look at homes that you know you will be able to get. When you show up with this statement a realtor will take you more seriously and will pull out all the stops to get you to purchase with them.
Steps To Becoming Pre-approved
Now that you have your application done the next step in the process is that you will become pre-approved or denied. This process should not take very long, provided you have surrendered to the loan officer all the information in a timely fashion, then you get a pre-approval statement.
Now you have 90-120 days to find a house. I f for some reason you haven’’ found one before then you will need to get a new letter of pre-approval from the lender. This is tricky because the rates may have gone up and he may have to change the deal.
Once you have a property picked out the loan may yet take awhile. There is the appraisal process to consider. If the house does not meet the bank standards for the amount of the loan you are back to square one. Look at it this way they want to make certain that if for any reason they have to foreclose on the home, the bank will get their money’s worth in resale value.
The house has passed inspection now it is time to get down to business. The lender has verified all the information you provided him and is ready for you to sign on the dotted line. You are now in the realm of loan approval. The lender will send you a letter in it will be the offer and a list of any additional information they may need. At this point it is important to get the information back to them as quickly as possible. One thing they will want to know at this point is that you actually have the down payment. They will want notarized statements from any family members that are gifting you a portion of these monies.
If your down payment will come from some other type of loan this will increase your debt burden and actually may cause them to rethink your loan.
5 Things To Remember
Below we have a list of ten things that is important for you to remember about applying for a home mortgage. These are things the lenders will be looking for so keep them in mind at all times.
1. First and foremost do not lie on the application or misrepresent any facts. Your Honesty is the key to getting a loan. You can even be charged with Fraud if they find that you have doctored or falsified any documents. What they need from you is “Full Disclosure”
2. Research the rate of loans actually approved each year by this lender. The institution’s history and lending practices will give you clear picture of what you are up against. If they are known for denying 20-30% of the applications that come in you bet if you have anything less than stellar credit you are not going to be in the percentile that gets approved.
3. Find out your debt to income ratio before you attempt the application. You should already have some idea of the amount of payments you can afford before hand. If your debt is too high a lender will see you as a risk.
4. Your credit report is the yardstick that you receive or are denied credit on. Most credit reports contain some errors. By obtaining your report and disputing anything that you consider as being incorrect you will save yourself the embarrassment later on.
5. Clear all credit card debt before beginning the application process. If you cannot pay them off totally at least have a very small outstanding balance.