How to Avoid Mortgage Application Nightmares
Deciding to buy a home is an exciting time that typically follows months of deliberation and research. But don’t get ahead of yourself: Deciding to buy a home and getting approved for a mortgage are two very separate things.
The faster you can obtain your mortgage approval, the sooner you can begin that exciting homebuying journey. However, the approval process can be a long and bumpy road – unless you understand exactly what’s needed from you right from the start. Being prepared, proactive, and efficient can be the ultimate factor between a homebuying dream or nightmare.
First, get your financial house in order.
Mortgage approvals require quite a bit of financial paperwork. By setting up a specific mortgage file, you can house the information in one place, which will make it much easier to pass information along to your mortgage loan officer and lender.
If you’re ever in doubt about which paperwork to include, remember: More is always better. Your mortgage loan officer and lender can always pick out what they need. However, there are certain federally required components.
The following checklist outlines the minimum requirements you’ll be asked for:
- Current and previous salary verification. Make sure you know your current gross (not net) salary. If you’ve been with your current employer for less than two years, you’ll also need to provide two years’ worth of previous employer dates and salaries.
- One month of pay stubs from your current employer. This goes hand-in-hand with salary and employment verification, which confirms you can pay back the loan.
- Two-year history of bonus or commission income. If you make a bonus or commission, you must prove a two-year history for it to be qualified toward your home purchase. This will be evidenced from year end pay stubs.
- Two years of personal Federal tax returns and W2’s. If you are self-employed you would need to provide two years of business tax returns as well. If you were unable to file your tax returns, a proof of extension is necessary. Keep in mind that how you write off business expenses also impacts your bottom line of income. For example, if you spend a substantial amount on air fare for business travel but were never reimbursed, it could throw off your salary verification.
- Two months of complete bank statements. This also includes statement from mutual funds, 401ks, and any other places where you actively hold money. You must provide all pages of these statements so it is a great idea to request paper statements from your financial institution a couple of months before you apply.
- Verification for all large cash deposits. Any deposits of $1,000 or more will likely be flagged by a lender. Receipts (e.g., tax return stub) or other documentation will be required to prove where these funds came from.
- Home insurance quote. Obtaining an insurance quote as soon as possible will help expedite the process. This cost could throw off your debt/income ratio and ultimately impact your mortgage approval.
- Credit report. You are entitled to a free credit report once per year from annualreports.com. The report gives you a closer look at tax liens, civil liens, judgements, and more, alerting you to items that need to be fixed before moving forward with your loan. Remember: you cannot close on a loan with an open judgement or collection.
Second, rely on your Mortgage Loan officer for guidance.
Do not, under any circumstances, submit information that wasn’t explicitly asked for. If you have a question ask your Mortgage Loan Officer before providing it. Doing so can inadvertently raise additional questions or the need for more paperwork.
For example, home inspection reports are not required during the approval process. If you submit an inspection that shows multiple problems with the home, it may cause the lender to require repairs to be made prior to closing the loan. In many instances the seller is not willing to make these repairs and you are fine with it, however, the lender has the final say. If you’re ever in doubt of documentation to submit to your lender, ask your Mortgage Loan Officer – it’s what we are here for!
Lastly, keep your cool.
Lenders will undoubtedly have questions for you and request more paperwork – and that’s OK. When you’re asking for hundreds of thousands of dollars, they have the right and responsibility to ask you for information that proves your credit worthiness and ability to repay the loan. But by finding a Mortgage Loan Officer you trust – and utilizing him or her effectively – you can make the paperwork and overall mortgage approval process much smoother. Before you know it, you’ll have the keys to your <a href="/AffinityFCU/cpt_internal
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