Congratulations! You’ve decide to purchase a home. This is an exciting time, but there is work to do before you pop the champagne.
The first step toward purchasing a home is getting pre-qualified for a loan.
Your loan officer will review your financial information and determine how much you are qualified to borrow and what financial programs you may want to consider.
A lender pre-qualification with a lender will answers the following questions:
- What is the best type of home loan for me?
- How much money will I need to put down?
- What will my payments be?
Be sure your loan officer/lender answers any additional questions you have. You want to be confident that you understand your loan.
Loan pre-approval and the accompanying pre-approval letter will typically be required to put an offer on a property. Keep in mind– A seller, before they take their home off the market, will want to know that you are already approved for financing.
As a pre-approved buyer, your offer on a home is much more likely to be accepted. So, be prepared to get that pre-approval letter before you start looking at any properties.
A pre-approval will require a credit check and documents that prove your income and assets.
Loan Prep Checklist
Depending on your unique situation, there are several documents you might need when you apply for a home loan, but here are the basics.
“Don’t sweat it, just gather the documents in the loan prep checklist in advance so you are prepared.”Dana Ash-McGinty, Real Estate Broker
1. Photo ID
You’ll likely need to provide a photo ID, such as a driver’s license. This is simply to prove you are who you’re claiming to be.
2. Social Security number
In order to assess you as a borrower, lenders will need to pull your credit report.
You may need to explain any blemishes on your credit. Blemishes may include a previous short sale or a foreclosure.
You should be prepared to fully explain any negative items on your credit report. This helps a lender evaluate what kind of risk you are. Lenders may look at one-time unavoidable circumstances differently from habitual delinquency.
3. Checking and savings account statements
When assessing your risk profile, lenders may want to look at your bank statements and other assets.
Lenders typically request these documents to make sure you have several months’ worth of reserve mortgage payments in your account in case of an emergency. They also check to see that your down payment has been in your account for at least a few months and did not just show up overnight.
4. Pay stubs, W-2s or other proof of income
Lenders may ask to see your most recent pay stubs from the past month or so. Your tax returns help give them a clear idea of your overall financial health, while pay stubs help them gauge your current earnings.
If you’re self-employed or have other sources of income (such as child support), you may need to show your lender proof through 1099 forms, direct deposits or other means.
5. Federal tax returns with W-2s, K-1’s, 1099 for the past 2 years
Mortgage lenders want to get the full story of your financial situation. You’ll probably need to sign a Form 4506-T, which allows the lender to request a copy of your tax returns from the IRS.
Lenders generally want to see one to two years’ worth of tax returns. This is to make sure your annual income is consistent with your reported earnings through pay stubs and there aren’t huge fluctuations from year to year.
Your lender’s goal is to assess you as a borrower and ensure you can make your mortgage payments on time.
Your goal is to provide them with documents that paint an accurate picture of your creditworthiness.
Since everyone’s situation is unique, additional documentation might be required. Your Loan Officer will let you know exactly what is needed.