A mortgage is a great option to consider if you’re looking to finance any homes that are currently for sale on the market. Aside from housing, this type of loan is also used to purchase other real estate properties that can serve as collateral.
When applying for this type of loan, it’s good to have an understanding of the requirements to maximize your chances of getting approved. In this article, we will look into the ins and outs of a mortgage application.
What You Need for Your Application
Before applying for a mortgage, you need to get all the paperwork in order. This will include the following:
Proof of Income
Mortgage lenders will ask you to provide documentation to give them an idea of your overall financial health. These documents verify your income and demonstrate your ability to pay back your loan.
- At least two years of federal tax forms
- Recent pay stubs and W-2s from the past 1-2 years
- 1099 forms, profit, and loss statements, or direct deposits (only if you’re self-employed)
- Legal documentation for other sources of income, including child support or alimony
Proof of Assets
Your lender might ask you for the following proof of assets when assessing your risk profile.
- Bank statements for savings and checking accounts
- Statements from your investment or retirement account
- Documents for any sale of assets before application, such as a copy of the title transfer if you sold a car
- Cash value of life insurance (if applicable)
Your credit report is a significant part of your mortgage application. Lenders will look at your credit history and search for factors such as bankruptcy or foreclosure. These things can make you ineligible for a mortgage. You may also be ineligible if your credit report shows you have a low credit score.
If you have any blemishes on your credit report, you may need to explain it to your lender with proof. Providing your lender with a written statement for the negative parts of your credit report will help them evaluate their risk in giving you a loan.
Mortgage lenders may require the following to verify other important details in your application:
- Driver’s license
- Social security card
- Renting history
- Documentation (if you own another property)
Applying for a Mortgage
1. File Your Application
After researching different lenders, you may already have been preapproved for one or multiple mortgages. With that step complete, it’s time to choose one where you will borrow money from. Start by calling at least three lenders and fill out their mortgage applications.
2. Compare Offers
Look at all your options and compare their terms and costs. Consider different factors, including annual percentage rate, percent paid in interest, amount of principal, and total cost.
3. Loan Processing
Once you have chosen the right lender for you, the loan processing begins. Be ready for any questions or documentation requests to expedite the whole process.
During this step, your lender will review all the documentation you have provided. They will decide whether to accept or reject your application.
If approved, your lender will send you the Closing Disclosure three days before the scheduled closing date. This document will contain the final cost of your mortgage.