5 Major Documents Needed When Applying for a Home Loan – If you’ve made the decision to apply for a home loan there are quite a few things that your lender will need in order to complete financing. You may have already completed a lot of these items in the preapproval process. Before making an offer on a home it’s always a good idea to get preapproved for a home loan unless of course, you are buying with cash. The preapproval letter can ensure your offer will definitely get reviewed. Those that have not done their financial homework in order to buy a house, make it show to the bottom of the pile.
If you haven’t already been preapproved, that’s your first step.
Preapproval is offering your lender access to your credit history, assets, liabilities, and they have a more accurate snapshot of your current finances. Lenders will look at your credit score, pull your credit history, take a look at your income, assets, and debt to income ratio and determine how much home you can actually afford. They will divide this up into appropriate payments to determine how much your income can afford in a monthly mortgage payment.
Once this step is done, your lender will issue a letter of preapproval. This preapproval letter can be submitted with an offer stating to the seller that you’ve already done your financial homework. Think of it this way, if a seller had two identical offers one with guaranteed financing and one without a preapproval letter, are likely to choose the one that has guaranteed financing.
After your offer has been accepted, the deal moves on to “subject to inspection” and this is where everyone really gets to work. Your lender will now need certain documents to move the financing process forward. Here are the five major documents needed when applying for a home loan.
Your lender will want to verify that you are the actual person applying for the home loan. This is never more crucial than if you have a somewhat popular name like John Smith. However, even if you are the only one with your name out there, lenders will still need proof of identification either through an official state or federal identification card, valid driver’s license, or passport.
Most lenders will require some form of income verification even those that are self-employed. It will either need proof of bank statements, tax returns, 30 days of pay stubs, your last couple of W-2s, or proof of any additional income such as alimony, child support, or Social Security. You want to provide the most current and up-to-date information.
Access to financial accounts.
Lenders will need access to at least your last two vague statements, any investment account statements, and retirement accounts. They will need to see exactly how much money you have coming in each month on a consistent basis.
Lenders will also want a statement showing the settlement of your prior home sale if you have one. If you are going from renting a property to buying, you probably won’t have this type of document.
Every home loan and borrower are different so your lender may require certain documents that other lenders may not. You may need a gift letter from any family member or friends helping with downpayments. You may need landlord contract information on the last two years of rental payments. You may need a letter of explanation concerning issues like any collections or an explanation of errors or mistakes on your credit history. You may also need to provide a divorce-related document if applicable.
Again, every single situation is different so you’ll want to ask your lender what they require. Most lenders will provide you a list of documents needed with certain boxes checked next to each document. It’s best to get these documents back to your lender as quickly as possible so that there is no delay in the process.
Buying a home is a big undertaking but it’s also important to understand all the documents needed if you plan on financing a home. Try not to get frustrated or overwhelmed. Lenders want to verify that you are the person you say you are and that you can afford the property you are buying. There’s nothing worse than mistaken identity or finding out you can no longer afford the home that you have committed to. Getting all of this financing situation handled upfront is really the best option.
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