Home buyers can often avoid disappointment, wasted time, and deals that fall through if they prepare mortgage documents well in advance for a home purchase. Although the specifics regarding the establishing of good credit and preparing necessary documentation may vary depending upon the bank, savings and loan, or mortgage company, the following can be considered a general rule-of-thumb when applying for a mortgage.
A good credit history is important when attempting to secure any loan, and this is especially vital when about to seek a home mortgage.
• Buyers should establish at least two years of continuous employment. If he or she was a student part of those two years transcripts should be provided.
• Buyers should establish a savings account and a checking account.
• To establish a good payment history, buyers should try to pay most bills by personal check.
• Buyers should establish a viable credit history.
• Buyers should ensure that all monthly debts are paid on time, and that debts are kept low.
• Buyers should develop a relationship with a real estate broker or agent, someone the buyer will trust and with whom the buyer feels comfortable.
• Buyers – or their broker or agent – should contact a loan officer who will pre-qualify the buyer, in-person or over the telephone, to determine how large a mortgage for which he or she can qualify, and to assist in the loan process after the parties have found a property to purchase.
Buyers will need to make formal written application for a mortgage as well as prepare mortgage documents, and the following information and documents should be considered and prepared when applying for mortgage through most lenders.
• Pay stubs: Check year-to-date balance, any deductions for health or life insurance.
• Bank statements: Buyers usually will need two current monthly statements on checking accounts, credit union, etc., and a copy of passbook savings accounts to show activity for the two most recent months. If any deposits are unusually high, an explanation must be made in writing. Acceptable sources are a gift or bill of sale for sale of personal property or some sort of refund etc.
• Earnest money: Earnest money must be from a verifiable source, no “cash at home “. Usually, for conventional loans, 5% of the loan amount must be the buyer’s own funds. Anything above that can be a gift. Withdrawal of earnest money should be proven by providing a copy of the bank statement.
• Gift letter: For all gifts, a “gift letter” must be completed by the gift giver. The gift should be given by check so that a copy can be attached to the gift letter along with a copy of the passbook or statement to show deposit of the gift.
• Tax returns: The W-2 form should be reviewed to ensure that it corresponds with the information on the application.
• Verification of employment: The Verification of employment document must be prepared and filled out by the applicant’s employer; if not completed properly, the VOE must be sent out again until it is completed and returned correctly by the employer to the lender. Previous employment must be verified if current employment time is under two years. If there is no previous employment, applicant must either have been a student or have an acceptable explanation.
• Verification of deposit: Deposit verification must show the buyer’s current balance and the average monthly balance for the previous two months. All verifications must have the official’s original signatures, date, and title. Faxed copies are acceptable but the original usually must be delivered or sent in the mail.
• Credit report: The credit report company will receive a copy of the handwritten application from the lender, and will call to verify information on the application. A copy of the credit report will be sent to the lender. A copy will also be sent to the applicant if the report contains adverse information.
The applicant must write a letter of explanation explaining any late payments, recent inquiries by other lending institutions or creditors or any other adverse credit information. The letter of explanation must show that the applicant was not negligent.
Acceptable explanations are illness, divorce, or errors made by the creditors. All judgments must be paid and cleared, and a copy of the release sent to the credit report company to clear the report. Bankruptcies must be at least two years old and credit must have been re-established.
• Documentation updates: If a loan goes beyond the allowed amount of time for processing (90 days, in most cases), some of the documents must be prepared and sent out to be updated, in this case, the applicant should check with his or her mortgage loan officer.
• “No-Doc” Loans: With the proper amount of down payment, some mortgage loans do not require all the previous documents, although some items (such as savings) must still be verified in some cases. The applicant should check with his or her mortgage loan officer.
Preparing the necessary documentation gives many people a headache. The above list will surely help you prepare mortgage paperwork and make the process of applying for a mortgage hassle-free.