What documents will I need when applying for a mortgage and why do you need them?
YOUR INCOME AND EMPLOYMENT HISTORY
Step number one is to find the most recent pay stubs and the last two year’s W-2 and tax returns
for each person on the loan application.
This basic information speaks to your job stability and gives insight to your lender about whether
you’ll be able to make monthly mortgage payments.
YOUR DEBT AND MONTHLY EXPENSES
When applying for a mortgage, list any outstanding loans you’re currently repaying – including all
auto loans, mortgages,
student loans, credit cards, and child support or alimony payments. Be sure to include the
creditor’s
name, address, account numbers, minimum monthly payments and current account balances. Lenders will
use
this information to determine your debt-to-income ratio, or the percentage of your monthly income
that’s
spent on paying your debt.
WHERE YOU’VE LIVED
One of the easiest to find documents you need when applying for a mortgage is a list of where
you’ve lived for the past two
years, including landlord names and addresses if you don’t already own a home.
YOUR ASSETS
Lenders need to see your bank account statements for all checking, savings and money market
accounts, homes or properties
you currently own (including the lender’s information, account number, monthly payment and what you
owe
on the loan), and other asset statements like stocks and bonds, IRAs, CDs or any other securities
that
could be used for a down payment. You should also provide pension, social security or disability
payments
if applicable, dividend earnings, and bonuses. They’re required to verify that you have the
necessary
funds in place for closing costs, down payment, and cash reserves (if required) for the loan you’re
trying
to obtain.
GOOD TO KNOW
Even with these documents ready, your lender may ask for other supporting information. It’s common
for loan officers to need
additional documentation as they work through your loan application. And if you own your own
business
or work contract or freelance, you’ll also need 1099 forms and profit and loss statements for at
least
two years. The very best thing you can do when applying for a loan is to avoid making big changes
or
taking more cash out of your accounts than usual.
What are closing costs?
Closing costs include items like appraisal fees, title insurance fees, attorney fees, pre-paid
interest and documentation
fees. These items are usually different for each customer due to differences in the type of
mortgage,
the property location and other factors. You will receive a loan estimate of your closing costs in
advance
of your closing date for your review.
What is PMI?
Also known as Private Mortgage Insurance, PMI is a monthly insurance premium charged on
conventional mortgage loans in which
the buyer put down a down payment of less than 20% of the cost of the home. PMI is the lenders'
protection
in the event that you default on your primary mortgage and the home ends up going into foreclosure.
These
premiums can be removed once you’ve paid off 20% of your loan, including interest.
What is the difference between fixed rate and an adjustable rate mortgage?
The basic difference is that with a fixed rate mortgage, the interest rate on the home loan will
not change over the entire
life of the loan. This allows the borrower to accurately predict their future payments.
With an adjustable rate mortgage, the interest rate if locked in for a specific time period but can
fluctuate annually, depending
on the federal prime rate, after the locked period expires. The fluctuating interest rate can
increase
or decrease the amount of your monthly payment.
What is a DTI?
Also known as your Debt-to-Income ratio, your DTI is the ratio of monthly liabilities and housing
expense divided by the
monthly gross income of the borrower(s). Lenders use your DTI to determine your ability to manage
the
monthly payments of your home, as well as any other debts you may have.
Are there advantages to purchasing a home?
BUYING A HOME IS A GOOD INVESTMENT
Rental costs are creeping up. And, while home prices are also increasing, when you stay long
enough, the value of your property
will traditionally go up as well. When you are ready to move, you’re likely to get a substantial
return
on your investment. Because interest rates are currently low, now is a good time to consider taking
the
plunge. Click here for information about projected rising interest rates.
OWNING A HOME STABILIZES YOUR BUDGET
When you’re a renter, there are many things out of your control. Landlords can (and do) raise
rents. In most cases, you can’t
guarantee your rent will remain stable for the long term. Owning a home, however, means you know
your
mortgage payment – on a fixed rate term of up to 30 years – and can plan accordingly. And, bonus:
after
you pay off your mortgage the home is yours!
THE TAX BENEFITS ARE REAL
Have you heard of mortgage interest? In the early years of your mortgage, interest is often a large
part of your mortgage
payment each month. Deducting the amount of your mortgage interest payments from your taxes is the
chief
tax benefit of owning a home. And, if you itemize your deductions, you can also deduct property tax
payments
and other expenses from your federal income tax.
YOUR NEST EGG CONTINUES TO GROW
Every time you make a mortgage payment, you’re one step closer to paying off your loan while
building equity at the same
time. What’s more, as your home increases in value, so does the amount of equity you have at your
disposal.
When necessary, you may be able to borrow against that value – to make home improvements or for
unexpected
medical or education expenses. This type of home equity line generally offers lower interest rates
than
a credit card and can be used to pay off high-interest credit card debts.
What is a home appraisal?
An appraisal is an unbiased professional opinion of a home's value in the fair market. Appraisals
are needed to ensure the
homebuyer, the home seller and the mortgage lender receive the accurate and true value of the real
estate
in question. Appraisers will typically look at the following to determine the value of the home:
- Lot size, view, curb appeal, etc.
- Value-adding features, upgrades or additions
- Quality of construction, structural integrity and overall condition of the property
- Recent comparable sales (otherwise known as comps) in the area
- Anything that might add or subtract value