Loan Applications: What You Need!
Applying for a home loan sometimes feels like getting teeth pulled. While the process is difficult, it shouldn’t prevent you from following your dreams of becoming a home owner! After doing your homework, applying for a mortgage loan can even be fun! (Haha, that’s a lie, but at least being prepared will make the process less painful.)
Before we gather up the substantial amount of paperwork you’ll need, there are a few things you should find out. First of all, ask how long the loan approval process will take. These days the range is broad—anywhere from a day to three or four months and this is the crucial part - DEPENDING ON YOUR LENDER. This is important, because if you have a mortgage contingency clause in your purchase contract, your lender needs to know it so they can help you meet your deadline and not all lenders are the same so ask the questions on timing it is crucial!
Next, you need to be aware that you’ll have to disclose where you got the money for your down payment. If you borrow the money, that debt will be considered in the approval process (it could even increase your interest rate or prevent you from being approved at all.) If relatives are providing the money, you need proof that the down payment is a gift—in other words, that you won’t have to pay it back. All deposits into your account during the pre-approval process must be accounted for somehow to your lender.
Find out if your state allows mortgage prepayment penalties. You need to be aware that if these are legal where you are, there will be a charge if you pay off your mortgage early through refinance or multiple principal payments. Avoid mortgages that require a prepayment penalty beyond the third year.
Now get ready—the following is what you’ll need when applying for that loan:
Asset items
l Bank statements are needed for the past two months (sometimes three) on all accounts. Your lender needs ALL pages, even if you don't think they're important l Statements for two months on all stocks, mutual funds, bonds, etc. l Copy of latest 401K statement (or other retirement assets because they can count as reserves) l Explanations for any large deposits and source of those funds l Copy of HUD1 Settlement Statement on recent sales of homes l Copy of Estimated HUD1 Settlement Statement if a previous home is for sale, but not yet closed l Gift letter (if some of the funds come as a gift from a family member - the lender will supply a blank form) l Gifts can also require: 1. Verification of donor’s ability to make the gift (bank statement) 2. Copy of the check used to make the gift 3. Copy of the deposit receipt showing the funds deposited into bank account or escrow
Note: many get their statements of various kinds over the internet and these are not always acceptable to lenders, especially when the printed version does not contain the borrower's name, account number, and the name of the institution.
Credit items
l Landlord’s name, address, and phone number (if you rent - for verification of rental) l Explanations for any of the following items which may appear on your credit report: Late payments; Credit inquiries in the last 90 days; Charge-offs; Collections; Judgments; Liens l Copy of bankruptcy papers if you have filed bankruptcy within the last seven years
FHA loans
l Copy of Social Security Card (or other documentation of social security number) l Copy of Driver’s license
Income items
l W2 forms for the last two years l Most recent pay stubs covering a 30 day period l Federal tax returns (1040’s) for the last two years, if: you are self-employed; earn regular income from capital gains; earn sizable interest income, etc.; earn more than 25% of your income from commissions or bonuses; own rental property; or are in a career where you are likely to take non-reimbursed business expenses). l Year-to-Date Profit and Loss Statement (for self employed) l Corporate or Partnership tax returns (if you own more than 25% of the business) l Pension Award letter (for retired individuals) l Social Security Award letters (for those on Social Security)
Miscellaneous items
l Copy of purchase agreement (if you have already made an offer) l To document receipt of child support (if you desire to show it as income) l Copy of Divorce Settlement (to show the amount) l Copies of twelve months canceled checks to document actual receipt of funds
Refinances
l Copy of your most recent monthly mortgage bill l Copy of Note on existing loan l Copy of HUD1 Settlement Statement on existing loan
VA loans
l Copy of DD214