3 Essential Things You Need When Applying For A Mortgage Loan

Homeownership is a major step forward in both adulthood and wealth building. But as essential as shelter is, the process of buying a home can be more confusing than expected. Sixty years ago, you may have been able to save cash for a quality home. However, today’s reality means that you’ll likely need to pursue a mortgage to make your purchase.

Before you get too carried away saving homes to your favorites lists, you need to determine what you can afford. To do that, you’ll need to do more than look at your current rent payment – you’ll need to get pre-qualified for a mortgage. Start by gathering the information you’ll need to bring to your loan officer, and you’ll make the process a breeze.

1. Proof of Income from All Sources

Your ability to repay a loan of any type is dependent on the money you bring in. Confirming your income sources and amounts is one way your lender can approve your borrower status with confidence.

Start by gathering your most recent W2s, tax summary sheets, and paystubs. Lenders may have different preferences for how many years or months they want to see. However, two years of annual statements and two months of paystubs are common requests when lenders conduct income verification. If you’re self-employed, you’ll need to provide annual profit and loss statements and contracts to support your income reporting.

If you’ve recently changed career fields, you may need to provide more context to the shift. What lenders are trying to solve for is risk — if your career pivot causes concern, it may be problematic. Similarly, be careful if you’re in the middle of a job search, as most employers have a 90-day probationary period. Any perceived lack of reliability could create an issue.

2. Details on Your Financial Obligations

Your credit report will usually provide lenders with a comprehensive overview of your financial obligations. Beyond assigning your financial habits with a credit score, your credit report covers your lifetime economic history. If you’ve not pulled your own report recently, you can do so for free without impacting your credit. Consider making this request to confirm everything is in order before you pursue a loan.

With your approval, they’ll be able to view your monthly obligations, balances owed, and payment history. Request access to this report to ensure it’s up-to-date and accurate. The as-of date will vary, so if you’ve recently paid off a loan, provide that information to your lender. If there are inaccuracies in your report, reach out to the financial institution to get it corrected.

Share information about alimony or child support obligations as well. While some of this information is listed or easily viewed on your paystub, you should provide it directly. Ensure you’re providing accurate data across the board, even if you’re concerned about getting approved for a smaller loan. Your diligence now will make sure you’re able to manage your monthly obligation for the major purchase of a home.

3. The Specifics of Accessible Cash

Your lender will want to see how you manage your cash flow. Start by downloading the last three months of activity for your checking and savings accounts. This 90-day view will show your lender how you manage obligations and provide multiple iterations of income deposits. Do this for all of the banking institutions you and your co-borrower, if you have one, have access to.

Although you may not plan on dipping into longer-term savings for your loan, showing financial acumen is helpful. Download the most recent statements from your retirement accounts, brokerage accounts, and even 529s. The goal here is to show financial responsibility and the ability to access cash if necessary. All of these factors can support your loan request.

If you’ve received gift income, your lender will need a letter to clarify who it’s from and for what purpose. A large deposit could throw a red flag during the underwriting process, so understanding its source is important. There generally isn’t an issue with gift money, especially since many cultures have traditions where down payment money is gifted. If you’ve received such a gift recently, draft a letter explaining the deposit as you gather other documents.

Make Your Mortgage Loan Process Simple

Preparation in any area of life can reduce stress and increase simplicity. Get ahead of the mortgage loan game by organizing your documentation now. Create a folder in your preferred document storage location, keeping in mind the security needed for your personal financial information. Share access with your co-borrower, as they may have access to documents that you don’t, like their W2s. Include your government-issued identification in this file and ensure it’s not set to expire while your loan is being considered.

Create a file name methodology you can use across each document type. This approach can make finding documents easy for both you and your loan officer. Save each of them as a PDF to increase security and allow for easy file conversion if needed. When you get to the point where your loan officer requests documents, you’ll be ready. And your mortgage loan process can get a jump start on making your home ownership dreams come true.