Applying for a Loan
Applying for a loan can be one of life's more dramatic — and even traumatic — moments. You may feel like lenders are trying to make it harder than it should be. But remember, mortgage lenders are in the business of loaning you money for a home; they want to help you.
Pay down your mortgage as quickly as possible. There is nothing sensible about paying interest. If and when you can pay more than your required payment amount, pay more. This will not reduce the amount of your monthly payments, but it reduces the principal (or the total amount you owe), which means you will pay it off sooner and pay less interest in the long run. Ask your lender how to make this work for you.
Having a document from a lender stating the institution will offer you a mortgage of X dollars will make you look like the serious buyer you are. It is a good negotiating tool as well — no eager seller is going to turn away a qualified buyer. There are many factors, as you will see, that go into the approval process.
Get ready for a lot of paperwork. Papers, documents, files, numbers — whew! It may seem like a lot of work, but knowing what will be needed will help you get organized and prepared for the mortgage application. Income, debt, down payment, and a good credit report are the prime components lenders use to gauge creditworthiness. Based on that information, they will determine what amount they are willing to lend you. You might learn you need to pay off some old bills, clean up your credit, or save more money. But whatever information lenders pass on to you in the way of tips will help move you along the mortgage approval process.
It is a good idea to take the mortgage application form home and fill it out when you can give it your full attention, rather than trying to complete it in the lender's office. Ask for a few copies. Use one as a rough draft, making all of the changes you need on that form. Then transfer your answers neatly
to the final copy so it will be as neat and correction free as possible. Don't let the lender see a form with scratched-out figures or huge dabs of correction fluid. Besides looking messy, it could cause the lender to wonder about the truthfulness of the information you've given.
It's a good idea to do a little research and find the following information for the mortgage application:
Recent address(es). List the places where you have lived for the past two years.
List of assets. Assets include holdings such as stocks and bonds (if you have an account with a stock brokerage firm, include the most recent statement), IRAs, vested amounts in retirement plans, surrender value of life insurance policies, cars, and so on. Include current balances, names, and addresses of institutions and account numbers for each item. Remember that if you're planning to sell assets such as jewelry or a car to get money for your down payment, you should do it as soon as possible so your bank balance reflects as long a history of savings as possible. Lenders don't just want to know your current bank balance; they also ask for the average balance for the last three to six months.
List of debts. Make a list of your credit cards, auto loans, school loans, and any other debts you currently have. Show the names of the organizations that have extended credit to you, their addresses, your account numbers, the amounts owed, and the monthly payments. You're probably keeping a tight reign on your money now, in preparation to buy a home, but if you can, pay off as many bills as possible to reduce your debt load. Debt will count against you in the loan process.
Divorce papers, if applicable, along with child-support agreements. If you receive child support, you may choose to have this income considered to help you get the mortgage you want.
Extra income. If you have regular sources of extra income, include these on your application. That does not mean occasional overtime; it means, for example, a second job.
Foreclosure and bankruptcy status. If you experienced either within the previous ten years, you must report that information to the lender (they'll probably find out anyway). Neither has to keep you from buying a home. Sometimes, bankrupt house hunters can qualify for a home as soon as a year or two after a bankruptcy is discharged.
Gift letter. If Mom and Dad are helping you with the down payment, get a letter from them attesting to that, noting the money is indeed a gift, and they do not expect to be repaid.
Income and employment records. Collect W-2 statements for the last two years and pay stubs from the previous month. Incidentally, this is not a good time to change jobs, unless your new position will be in the same line of work and you will be earning more. A lender will be skeptical of too much job-hopping, especially if the changes were not really promotions or they involved a total career switch. If you are self-employed, you will need to show your federal tax returns for the previous two years as verification of income.
Social security number. List your number and that of anyone buying with you.
VA documentation. If you are applying for a VA-backed loan, you will need a certificate of eligibility. To obtain that form, contact your local VA office six to eight weeks before applying for a loan.
As mentioned in Chapter 3, a vitally important part of your loan approval is your credit report. It is wise to check them out now at
Go over everything in that report carefully. If you see an account with an unrecorded payment and you don't have time to clear up the report before meeting with your mortgage loan officer, bring a copy of your canceled check showing you paid that store or credit card company. Visit Chapter 3 for more on credit.
