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Banks, Mortgages and Documentation Galore: What You Need to Know Before You Apply for that Home Loan

Whether you’re a seasoned homeowner looking to trade in or up, or a first-time homebuyer just dipping their tow into the real estate game, one of the first lessons you’ll learn about homebuying is that picking out your potential new property is just the tip of the iceberg when it comes to logistics.  Before you get those keys in hand, you’ll need to apply and qualify for a mortgage loan and provide supporting documentation to meet the bank’s rigorous supporting documentation requirements.  While this may all sound a bit daunting, never fear!  Homegather has put together a handy guide of the documentation you’ll need to provide to help pave the way to a smooth, worry free homebuying transaction.

Prove Your Income

One of the first steps to applying for a mortgage, or getting a pre-approval letter for that matter, will be providing the lender with information regarding your various sources of income.  While this is a straightforward process for many, there’s a few key points that may cause hiccups depending on your financial circumstances.

For purposes of a mortgage, income can be your regular salary, pre-tax and can be documented via check stubs or, preferably, tax statements from your employer which are supplied on a yearly or monthly basis.  If you receive an annual bonus, this amount can generally be included in your income if you’ve received it regularly for at least two years.  If you have income from self-employment or freelance work, individual lenders may have different requirements for length and regularity of payments and for documenting your compensation.  Check with your assigned loan officer before assuming that money will be able to be counted towards your total income.

Bank Statements, Tax Returns and Your Mortgage

The documentation required for your mortgage doesn’t stop at income.  Home loans are typically large investments for banks and the documentation they require to ensure you’re a good financial investment can be extensive and may seem a bit intrusive.  Banks will regularly ask for checking and savings statements, tax returns and, in some cases, individual credit and other financial statements that track major purchases.  Be prepared to explain any large finance transactions within roughly six months of the date of purchase of your new property and be wary of taking on new debt before closing on your home lest it trigger the need for additional paperwork and approval.

Check Your Credit Report, Not Just the Score

While most of us have a rough idea of our credit score before heading into the bank, far fewer actually review the credit report for individual entries.  Per federal guidelines, consumers are entitled to one free, detailed credit report per major credit reporting agency, per year.  Before beginning the homebuying process you and your spouse should each thoroughly review this report.  Look for any charges or accounts that may seem out of place and update any erroneous information.  For unused accounts, consider speaking with your mortgage officer about whether closing them would impact your credit score in a positive way.  Even a few points improvement can return big dividends on the terms of your future mortgage interest rate.

The Bottom Line

Mortgages are perhaps some of the most complicated financial agreements you’ll ever enter.  While this isn’t an exhaustive list of the various letters, documentation and forms you’ll be required to submit, its hopefully a starting point and introduction to some of the bigger obstacles you may encounter on the road to home ownership.  If you’re looking to begin the home buying search, Homegather.com is a great place to shop potential properties in your area, as well as get referrals to top real estate professionals who are able to assist and answer any questions you may have about this exciting and complicated process.

 

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