So you think you’re ready to buy your dream house?
Or maybe you’re just ready to buy your starter home. Regardless, you’ll want to make sure that you have all the things you need in place to make your plans possible.
Unless you’re buying your house outright, which is rare, you’ll be reliant on a bank to make your plans possible. In which case, you’ll need to apply for a home loan and start the process of making your wish come true.
A lot goes into your first home. To you, it’s more than just an investment. To a bank, you’re just another customer who needs a loan.
Getting the home you want means a lot to you. We’re here to help you navigate the business side of things. Read on to learn how to qualify for a mortgage.
1. Do Your Homework Before Selecting a Lender
If you’ve been banking at the same bank for a long time, you may have already had a lender in mind. If you haven’t, that’s okay too.
If you already bank with multiple banks or credit unions, you can use the time leading up to your purchase to shop for a loan. You’ll want to look for a loan with the lowest interest rate available.
These small differences can make a huge impact in the long run, so it’s important to do your due diligence before selecting a lender.
2. Get Someone in Your Corner
Your point of contact is just as important as your lender. Having a loan officer that you trust is a great first step toward home ownership.
While there is only so much any single loan officer can do, it’s important to know that they’re on your team. Loan officers can’t forge documents or forgo the requirements for homeownership, however, having someone in your corner can help you overcome any obstacles that may arise during the approval process.
In short, you’ll want someone who’s prepared to make repeated phone calls if your boss is unresponsive or would be willing to resubmit any paperwork that hits a snag along the way.
3. Get Your Credit History In-Line
If you’ve had issues with your credit, it’s important to get your credit score up before applying for a loan. Even if you’ve never had credit issues, you’ll need to have your credit history before applying for a loan.
Your lender needs to know that lending to you is a safe investment. This is why you can’t avoid the credit check process. If you don’t have a long credit history, it can be wise to open a credit card as you prepare to purchase a home.
Don’t apply for multiple cards, as each credit lender runs a ‘credit check’ to verify your credit status. Multiple credit checks can lower your score, so don’t go crazy.
After opening a credit card, it is important to use it. Keep your balance low. It is said that you shouldn’t use more than 30% of your available credit when you’re looking to build credit.
Make regular monthly payments and you’ll be on the way to an optimal credit score.
4. Talk to Your Employer
If you’re looking to buy a home and you aren’t self-employed, it’s likely that your potential lender will reach out to your employer before giving you a loan. Some lenders may even request written verification of your salary and position, printed on your employer’s company letterhead.
Lenders have also been known to send out a ‘verification of employment’ form. This will likely be sent to your employer’s human resources department. If you work for a small business, however, it will likely be sent directly to your boss.
In which case, you may want to give your boss the heads up beforehand. You can let him or her know what to expect and why it’s important that they reply in a timely fashion.
These forms are solely meant to verify that you are who you say you are and that you have the means necessary to make your monthly mortgage payment down the road.
Employment verification, consisting of either a month of pay stubs or W-2s going back two years will likely also be required. If you’re self-employed, don’t worry. You’ll be asked to provide copies of your tax returns to the lender lieu of the standard W-2 forms.
5. Get Preapproved for a Mortgage
Before you make yourself ready to buy a house, it is important to make sure you are qualified to borrow the funds you’ll need. A lender will look into your credit history, income stability and current finances.
Once you passed the initial phase of what feels like a financial background check, the lender will tentatively prepare your loan release papers. This process is called mortgage pre-approval.
You’ll need several things to get a preapproval letter from a lender. First off, you’ll need identification. This includes providing your Social Security number to the bank.
If you’re buying a home with a spouse, he or she will also be expected to provide identification as well. They will also need to provide much of the following information.
Contact your bank to get the most recent copies of your bank statements. You may be expected to provide multiple months worth of statements. It’s prudent to ask your bank to provide these documents ahead of time.
If you have online banking, you may have the option of printing off copies of your previous statements. This can make the process simple and easy.
6. Know What to Expect
It can take up to 90 days to get your mortgage pre-approval sheet. This is why it’s important that you begin any pre-approval process before you start shopping for a home.
You don’t want to find yourself dead set on buying a home that you can’t find a lender for. This can lead to much unnecessary frustration for you and your family.
Knowing that you can expect to wait up to 90 days is a necessary evil. Even then, creditors may take a look at your finances once again. This is meant to verify that there haven’t been any major changes in the interim period.
Once you have aced your home loan approval process, you’ll have your loan released in no time. Patience is a virtue! Learn more here.
7. Don’t Take a Loss on Your Taxes
It can be tempting to search for deductions when it comes time to do your taxes. Normally, this is considered to be a smart and prudent move.
When anticipating a home purchase, however, using deductions or taking a loss is not so great. These are the very same documents your lender will pull when reviewing your application.
As much of an inconvenience as it may be, it is necessary to pay out taxes to avoid taking a loss. You’ll need to provide proof of your healthy income when it’s time to make your purchase.
8. Get the Remaining Documents You’ll Need to Buy a Home
So you’ve passed the pre-approval process, hurray! Unfortunately, there’s more work in store before you’ll be able to sign papers and get the home you want.
There’s a variety of mortgage loans which you can choose from if you qualify. Each has a specific set of requirements with which you will be required to comply.
Organizing your financial documents and other necessary papers required by the lending company will help you avoid unnecessary hiccups.
- A signed purchase agreement with the seller
- W-2s for all employment going back two years
- Pay stubs for the last 30 days
- Bank statements for the last 60 days
- Tax returns going back two years
- Proof of homeowners insurance
- 1099 forms if you are self-employed
- Documented dividends, stock earnings and other sources of income
- Proof of bonus income
- Pension statements
- Securities documents such as stocks, bonds, and life insurance policies
- Social Security or disability income award letters, if applicable
Once you’ve assembled the necessary paperwork, you can feel assured that you’ll be ready to pull the trigger on your home purchase.
9. Find a Real Estate Agent You Trust
Finding a real estate agent that you trust is also important when looking to qualify for a mortgage. You should express all relevant concerns you have and discuss your budget.
A good real estate can help you find a property that is as much of an investment as it is a home. This is essential when making your first property investment.
It is incredibly important to shop for a home that is well within your price range. This will make the qualification process easier and prevent any unforeseen obstacles when purchasing a home.
10. Learn More About How to Qualify for a Mortage
There are two main things you have to bear in mind after learning how to qualify for a mortgage.
First, creditors will be looking for your credit history and identify your ability to pay back your loan. In the year and months leading up to your purchase, it is important to have a good credit standing, your potential lender will be assessing your ability to pay back your loan.
Get the Right Information
Preparing yourself with adequate information on how to qualify for a mortgage in advance is essential. In doing so, you’ve already made an important step towards home ownership.
For more about what to expect, visit our blog for more.