You've found the house of your dreams, but homeownership is impossible without a mortgage approval from a lending institution. Lenders are becoming more particular about handing out mortgages and tend to look for specifics in loan applications. You can make a positive impression on the lender of your choice with four magic words: income, assets, credit and collateral.
To purchase real estate, you need to earn enough money to pay principal and interest on the loan, in addition to property taxes and homeowners insurance. Lenders also scrutinize your credit history, so a good credit score is essential. A down payment on the house is another crucial requirement. You also need an appraisal indicating that your potential new home is safe and has a market value comparable to the agreed-upon purchase price.
For most potential homeowners, the minimum required paperwork is one month of paycheck stubs, two years of W-2 forms and three months of bank account statements. But certain employment circumstances require additional paperwork. Be prepared to submit two years of tax returns if you're self-employed or a commissioned worker.
If you've been involved in a divorce, the lender will require a copy of your settlement. If you've filed for bankruptcy within the past five years, have your bankruptcy papers available to your potential lender. For those who have deferred repayment of student loans, a deferral agreement should be part of the financial paperwork.
If you plan to purchase a home, beware some common mistakes. Remember that lenders look for stability, so wait for prequalification before you intentionally make a job change. Once you're prequalified, avoid increasing your debt burden. Financial institutions rerun credit reports before closing, so increased debt might cause you to no longer qualify. Be on time with bill payments, because a late payment can destroy your credit score.
Salaried employees receive the same earnings each month and are the least complex for lenders to consider. Those who are self-employed or depend on commission for income have fluctuating revenues. Self-employed and commissioned individuals require more documentation, such as tax returns and bank account statements for at least two years. As for changing your job, you should try to have stability for at least two years before applying for a loan.
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