A checklist of all the things you'll need to be approved for a mortgage
Buying a new home is exciting, but costly. Unless you are planning to buy your new home with cash, you will need to secure a mortgage to pay for it. We’ve created a checklist of all the things you’ll need to to do so!
First of all, what is a mortgage?
Mortgages are loans given by a bank or lender that help you finance the purchase of your home.
In exchange for your mortgage, the bank or lender takes the title of the property as collateral until the mortgage is repaid. Mortgages are usually paid on a monthly basis, with payments made up of principal, interest, taxes, and insurance.
You must consider which type of mortgage you would like to obtain. There are many types of mortgages but the most common types of mortgages include:
Adjustable-Rate Mortgage (ARM): A loan in which the interest rate is fixed for an initial term, but then fluctuates with market interest rates. Monthly payments are unpredictable after the initial term.
Fixed-Rate Mortgage: A type of mortgage (also known as a “traditional” mortgage).The borrower pays the same interest rate for the life of the loan. Most fixed-rate mortgages have 15 to 30-year terms.
FHA Loan: A mortgage that’s insured by the Federal Housing Administration popular with first time home buyers because they allow down payments of 3.5% for credit scores of 580+. However, the borrowers must pay mortgage insurance premiums, which protect the lender in the case of a default.
VA Loan: A loan option available to United States Veterans and Service Members issued by qualified lenders and guaranteed by the U.S Department of Veterans Affairs (VA).
USDA loan: A special type of zero down payment mortgage that eligible homebuyers in rural suburban areas can get through the United States Department of Agriculture’s loan program.
Required documents to be approved for a mortgage
Once you have chosen the type of mortgage you would like, you need to provide information verifying your financial and personal life to your lender for approval.
The first thing you need to do is fill out a federally required mortgage application. This application can be completed on paper, through an online forum, or verbally with your loan officer.
Plan to provide the following information about yourself:
Full name, date of birth, phone number, and Social Security number.
Marital status, number of children and their ages.
Residence history for at least two years and payments associated with those residences.
Employment and income history for at least two years.
Asset account balances.
Debt payments and balances for any fixed debt obligations.
Confirmation of any bankruptcies or foreclosures within the past seven years, if you are currently involved in any lawsuits, or if you co-sign any loans.
Confirmation if any part of your down payment will be borrowed.
After completing the mortgage application, you will be required to provide documentation to verify it. Some required documents may vary from case to case, but you can generally expect to provide the following:
Tax returns-Lenders will want one to two years worth of tax returns to make sure your annual income is consistent with your reported earnings. You will likely need to sign a Form 4506-T so the lender may request a copy of your tax returns from the IRS.
Proof of income-This might include pay stubs, W-2, or any other documentation that will give lenders an idea of what your current earnings look like. Lenders will check your proof of income to make sure there are no major fluctuations from year to year. Proof of income might also include award letters from social security, pension, disability, etc or child support/ alimony check and deposits.
Bank statements and other assets- Lenders will look at your bank statements and other assets to assess your risk profile. They will make sure you have several month’s worth of mortgage payments on reserve in case of an emergency.
Credit history- Lenders will look at your credit report in order to assess you as a borrower. You may be required to provide further documentation or explanation for any inquiries on your report.
Photo ID- This might be a driver’s license, passport, or another form of identification proving you are who you claim to be.
Renting History- If you were previously renting a home, lenders will request documentation to prove you can pay on time. This may be in the form of a year’s worth of past rent checks or documentation from your landlord showing you paid rent on time.
The documents you provide should show that you are a responsible homeowner who will pay every mortgage payment in complete and on time. Pay attention to the specific list of required documents your lender will provide you with, as the exact documents needed may vary.
Before you can get down and dirty in the mortgage application process, you’ll have to find a house! Use our Homebuyer’s Guide to the Top Questions Your Realtor® Will Ask You to get you and your Realtor® search off on the right foot.