Years ago, applying for a loan was quick, easy and painless. You would fill out a brief application from a lender, he would check your credit score, and most probably you would get approved. Today, a couple of years after one of the worst housing and financial crises in U.S. history, the story is very different. Even if your financial situation is pretty solid and in check, you will not be able to avoid submitting a significant amount of paperwork. You can be sure that almost all aspects of your financial life will be evaluated from the start, and then reviewed again by an Underwriter, who will determine if ABSOLUTELY EVERYTHING is acceptable for the loan. Underwriters will not let any small details pass before signing off a loan, so by being thorough with your documentation you will save a lot of time and future headaches. If you are lazy with any supporting documents from the start, the Underwriter will get you later, guaranteed!
Even though there may be some differences in terms of the required paperwork for each lender or mortgage broker, the main idea should be the same and the following guidelines will help you get prepared for your loan application:
- ADDRESS & INFORMATION ABOUT THE PROPERTY IN QUESTION
- A COPY OF FULLY SIGNED PURCHASE CONTRACT if already executed and available
- PASSPORT and/or DRIVERâ€™S LICENSE
- SOCIAL SECURITY CARD/NUMBER or INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER
- MARITAL STATUS and a COPY OF DIVORCE DECREE if divorced
- HOME ADDRESSES FOR AT LEAST PAST 2 YEARS
- PLACE OF RESIDENCE
- RENTAL LEASE AGREEMENTS if any (with Letter from current/previous Landlord or 12 months of cancelled checks to landlord & bank statements showing that you paid on time)
- ANY ADDITIONAL DISCLOSURES REGARDING LEGAL STATUS/ISSUES or FINANCIAL OBLIGATIONS NOT PRESENT IN CREDIT REPORT
- LETTER OF EMPLOYMENT & INCOME
- 2 MONTHS OF MOST RECENT PAYSTUBS
- 2 YEARS OF MOST RECENT W-2â€™s from employer
- PAST 2 YEARS OF FEDERAL INCOME TAX RETURNS (with all pages & Schedules), signed
- If Self-employed, BALANCE SHEET or Year-to-date PROFIT & LOSS STATEMENT
- DOCUMENTS FOR ANY OTHER INCOME RECEIVED such as SOCIAL SECURITY, CHILD SUPPORT, DISABILITY, PENSION, DIVIDENDS, BONUSES, RENTAL PROPERY, and ALIMONY
BANKS & ASSETS
- ADDRESS and/or PHONE NUMBER OF YOUR BANK BRANCH
- CURRENT NAMES, ACCOUNT NUMBERS and BALANCES of all checking, savings, investment, trading, money market, credit card, stocks, bonds, life insurance, and retirement accounts. (Your accounts must show that you have sufficient money for your Down Payment and several Mortgage payments).
- PAST 3 MONTHS OF CHECKING & SAVINGS ACCOUNTS (all pages of statements, front & back)
- DETAILED LETTER EXPLAINING ANY LARGE DEPOSITS OR WITHDRAWALS
- EXPLANATION OF ANY BANK ACCOUNT OPENED IN THE LAST 6 MONTHS
- GIFT LETTERS with EXPLANATION, SOURCE OF MONEY and PAPER TRAIL given to you as gifts. When parents or relatives give you cash for your down payment, the Gift-giver must provide a Letter stating that the funds are not a loan and therefore do not have to be repaid.
- A COMPLETED and SIGNED FORM 4506-T or 4506T-EZ (allows the lender to get a transcript of tax returns, for fraud prevention)
CREDIT, BORROWING HISTORY & CONSUMER DEBTS
- CREDIT REPORT DISCLOSURE FORM (given by Lender, allows him to pull Credit Report & Score)
- BANKRUPTCY INFORMATION if any (COPY OF PETITION & DISCHARGE, CAUSE OF BANKRUPTCY, AND CHANGE IN YOUR CURRENT SITUATION)
- INFORMATIONS ABOUT ANY OTHER PROPERTIES YOU OWN
- Â OTHER CONSUMER DEBT INFORMATION such as CAR LOANS, OUTSTANDING STUDENT LOANS, FURNITURE LOANS, CREDIT CARD ACCOUNTS (including department store cards), CURRENT MORTGAGES or HOME EQUITY LINES OF CREDIT.
- A CREDIT SCORE LOWER THAN 680 WILL BE A PROBLEM, SO IF THAT IS YOUR CASE YOU WILL HAVE TO LOOK FOR POSSIBLE ACTIONS TO IMPROVE IT.
- IN ORDER TO QUALIFY FOR A LOAN NOWADAYS, YOUR DEBT-to-INCOME RATIO SHOULD BE LOWER THAN 43%, IDEALLY BELOW 36%. YOU COULD STILL QUALIFY WITH A HIGHER DEBT PERCENTAGE IF OTHER FACTORS SUCH AS ASSETS JUSTIFY THE RISK TO THE LENDER.
- DO NOT TAKE ANY ACTIONS THAT MAY LOWER YOUR CREDIT SCORE SUCH AS APPLYING FOR NEW CREDIT, CANCELLING CREDIT CARDS OR MAKING LARGE PURCHASES
- MONEY FOR DOWN PAYMENT AND CLOSING COSTS SHOULD BE SITTING IN YOUR BANK ACCOUNT FOR A MINIMUM OF 2 MONTHS
Starting early with all the paperwork, being thorough with all supporting documents and providing everything in an organized easy to read way is the key to a smooth and successful financing process. By following the tips and guidelines mentioned above, you will be well prepared, save a considerable amount of time and prevent a nightmare scenario with the Underwriters. Plan ahead, take action and increase the probabilities of your loan approval!
by: Adrian Morales Dobrzynski