Preparing to buy a house is one of the largest events in your life. The process to purchase a property can be overwhelming and at times be stressful. From finding the right home to getting qualified for a home loan, the home buying process can seem difficult, but if you are prepared for the process, then it will be much easier to buy your new property.
The first step in preparing to purchase a new house is to find the right financing for the property. Getting approved for a purchase home loan is an crucial step in the process. Below are a few steps you can take to make the loan process much easier. Keep in mind that home loans are not a difficult process as long as you are well prepared upfront.
Income Documentation
First, have all your documents ready at time of application. Several lenders require a two year history of income to be verified by supporting documentation including tax returns, income forms like W-2s, most recent pay stubs and any award letters for retirement income or social security income. If you are self employed, you will also need to provide two years business tax returns as well.
Documenting and supporting your income is an crucial part of your application. You want to make sure that the application shows the correct income you make. If you claim income that cannot be verified, this can affect the mortgage decision.
Here are some significant questions to consider when reviewing your income tax returns. Do you claim a loss of income on your return? Do you show a minus number in any of the schedules on your return? If you answer yes to these questions, let your mortgage loan consultant know as this can affect your loan decision.
Asset Documentation
Second, you will need to have your asset documentation. This is normally done by collecting the last two months bank statements. The home loan lender will use the bank statements to verify that you have enough assets to cover the closing cost, down payment and reserves needed for the closing.
Reserves are the amount of funds that must remain in your account after closing to show that you have extra money. Many lenders require at least 3 months reserves, which is based on one month’s loan payment. For example, if you mortgage payment is $2000, then the lender may require $6000 in reserves.
Additional Documentation
Finally, collect all additional documents that a mortgage company may require including a bankruptcy or divorce decree papers. If you have any of these documents, make sure to let your loan advisor knows so that they can complete the loan application accurately.
It is crucial that the loan application is completed with the most accurate information as possible. It is better to know if a problem will occur at the start of the mortgage process than towards the end.
Having the necessary documents prepared upfront is a way to lower the stress of the home buying process by making the loan process much easier.
David White is a Senior Mortgage Advisor who assists his clients with Dallas home loans.