Mortgage lenders require paperwork that verifies every facet of your financial life: income, debts, assets and more.
The lender will request the following documents, so gather them before you apply for a mortgage.
You will be expected to provide tax returns, including all the pages and schedules. The returns will be scrutinized for unreimbursed employee business expenses, self-employment business losses and signs of loan fraud, such as reported income that doesn't match your W-2s.
You'll be required to sign IRS Form 4506-T, which allows the lender to get a transcript of the tax return from the IRS. It's not a bluff: The lender will get the transcript of your tax return straight from the IRS and compare it with the copy of the return that you gave to the lender.
Ordering your tax transcript "has become an industry standard as fraud prevention," says Brad Blackwell, executive vice president and portfolio business manager for Wells Fargo Home Mortgage.
All the above documents (W-2s, paycheck stubs, tax returns) tell the lender how much you earn. The list of debts tells the lender how much you owe each month. The lender then calculates your debt-to-income ratio, which is key to the loan decision.
Percentage of monthly income that is spent on debt payments, including mortgages, student loans, auto loans, minimum credit card payments and child support.
Debt payments / income
Example: Jessie and Pat together earn $5,000 a month. Their total debt payments are $2,000 a month. Their debt-to-income ratio is 40 percent ($2,000 divided by $5,000 = 0.4).
The lender will want current bank statements, and possibly previous bank statements, too. These documents will be scrutinized to verify that you're telling the truth about the source of your down payment money. If you saved up for your down payment, without gifts from family, your bank records will verify that.
The lender will want to know your other assets, too. The lender wants evidence that you will have enough savings and investments to weather unexpected expenses after you have paid for the down payment and closing costs.
Often, renters will be asked to supply 12 months of canceled rent checks and bank statements showing that the rent was paid on time. Renters without that documentation can provide the landlord's name and contact information for payment verification.
For current homeowners, the lender might ask for canceled checks and bank statements showing that the mortgage was paid on time. Any late payments are likely to show up on the credit report, too.
The lender will check your credit reports. Months or weeks before applying for a mortgage, check your own credit reports. Correct any errors, such as:
If you receive a cash gift or grant toward your down payment, you'll have to provide a letter from the giver that declares that the gift isn't a loan. The lender might even want a canceled check and the giver's bank statement.
"It's not that big a deal, except that Mom and Dad don't like to give (their kids) a copy of their bank statement, especially if there is a lot of money in the account," says Joe Metzler, who heads Mortgages Unlimited in St. Paul, Minnesota.
When asked for documents, provide them promptly. Never cross out, white out or alter any information on a document. "If you white out anything, it's not a valid document for our purposes," Miller says.
Always provide every page of every document -- even the pages that say "This page is blank." "They want that, too," says Peter Ogilvie, president of First Residential Mortgage Corp. in Santa Cruz, California. "If it says 'page one of seven,' they want to see all seven pages."
Finally, remain ready to supply updated documents. "Documents expire after 60 days," Blackwell says. "So if homebuyers take a long time in their house-hunting effort, we won't need the whole thing again, but they will have to bring the most current paycheck and that type of thing."
Most people will need a mortgage to buy a home. That means that not only do you need to shop for a home, you need to shop for a home loan. But a survey of 2013 borrowers by the U.S. Consumer Financial Protection Bureau found that almost half of borrowers didn’t shop around before settling on a mortgage.
They should. In fact, you may find more loans to choose from than you do houses.
“Definitely shop around,” says Valentin Saportas, CEO and co-founder of MortgageHippo, a Chicago-based online mortgage application service that links buyers with mortgage brokers. “Don’t just go with the first option that you get. Being able to save even a little bit of money in your monthly payment definitely adds up.”
You should start looking for a mortgage professional before searching for a house. You want to make sure your credit is in order because mistakes can take months to correct. You also want to know how much house you can afford. You can run calculations online, but a good mortgage professional will better help you determine which loan is the best fit for you.
Finding the best deal on a mortgage can be a challenge because fees and rates change daily, sometimes more than once a day.
Whether you’ll get the best deal from going directly to a bank, a mortgage lender or a mortgage broker often depends on your situation, the mortgage pro handling your case and what’s being offered at the time. That means talking to actual people on the phone or in person, not just filling out an online form.
“There’s way too many variables in mortgage lending today to automate or streamline,” says Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage” and a mortgage broker in the San Francisco Bay Area. “The online piece is nothing but a lead generation tool, and they hand it off to a real mortgage lender. The money comes from the exact same place, and the same people are involved.”
You can buy a home with as little as 3 percent down – and nothing down if you’re a veteran. But if you put less than 20 percent down, you’ll need private mortgage insurance (or the Federal Housing Administration equivalent) in most cases, which can add roughly $100 to a monthly payment on a $100,000 home.
To find a mortgage professional, start by asking friends, colleagues, relatives and your real estate agent. You might also ask any finance professionals you work with, such as accountants or financial advisors. If you’re a member of a credit union, ask there. Some credit unions and local banks do their own mortgage lending and others contract with brokers. Call the banks where you have accounts.
In general, banks have the fewest options available because they offer only their own products, but they may be more flexible if they’re lending their own money – and they may make a deal if you have substantial assets. “You could get a really good offer, but you have to dangle the assets,” Fleming says.
Mortgage brokers offer the largest number of options, since they can shop your loan among many lenders. “If your loan can be done, a broker can find a place to do it,” Fleming says. “My opinion is to go to a really honest broker. Without doubt, they are going to have access to better pricing than anyone else.”
While the rates and fees offered by lenders are usually comparable, lenders that see a slowdown in business may offer better pricing, and a good broker will grab those deals.
The difficulty of the mortgage process, including the need to gather reams of paper documents, is one of the reasons for the growth of lending that occurs at least partly online. “Customer service doesn’t just happen on the phone or in person,” Saportas says. Once MortgageHippo links the borrower with a broker, the parties can decide how they want to communicate.
SoFi, a lender based in San Francisco, bills itself as the first lender to provide prequalification with any device, including a smartphone. “We believe that we are the only one able to offer a personalized quote within one minute on any device,” says Dan Macklin, co-founder and vice president of business development. “That’s proving popular with the younger generation.” Humans in California also are available if you prefer a phone consultation. “We like to think it’s automated but with a human touch when you need it,” he says.
Here are 10 tips for getting the best mortgage deal:
Compare apples to apples. When you get quotes from companies, don’t look at just the interest rate. Look at the rate and all the fees, including points, origination fees and any other fees charged by the lender. A “no-fee” loan just means the fees are included in the rates.
Ask to see the Good Faith Estimate worksheet, not just the GFE. Many people consider the current Good Faith Estimate, required by law, to be confusing, and it is being replaced August 1 with what consumer advocates hope will be a more useful document. Until then, ask for the complete worksheet, and make sure it itemizes all the fees.
Interview the actual person who will handle your loan. That could be a mortgage broker, a bank employee or a loan officer. Ask about experience and qualifications. Is the person licensed (required for brokers but not bank employees)? Does he or she belong to the National Association of Mortgage Professionals or your state’s mortgage professional association? Ask for references and look at reviews online. “The company does not matter as much as the originator,” Fleming says. “Even good companies hire really bad people.”
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