So, you are thinking about buying a house? Good for you!! Now, let’s get to work on a mortgage pre-qualification.
Many potential home buyers begin looking at homes without understanding the steps involved prior to engaging a Real Estate Professional. It’s essentially a matter of making sure the horse is in front of the cart!
Being prepared with the documents needed for mortgage pre-qualification will help make the process go more smoothly and quickly. Here’s what you will need to provide…
When buying a property, getting pre-qualified is a crucial step in the process of getting a mortgage. Before you can get there, though, your lender will need to review and verify information about your assets, income, and credit.
Standard Buyers
For borrowers who are regular employees (hourly or salaried) and are not self-employed here’s what your lender will need:
- Pay stubs from at least the past 30 days
- Tax returns (including W-2s) from the past two years
- Bank statements from the past two months to three months – checking, savings, money market accounts
- Employment information – contact information of employers in the past two years (some employers have an employment verification phone number lenders can call)
- Other income sources – bonuses, child and/or spousal support, disability or VA benefits, pension, Social Security or other sources
- Account statements from the past two months to three months – 401(k)s and/or IRAs, CDs, mutual funds or other investment or retirement vehicles
- Driver’s license, Social Security card or other form of ID
- 2 years of residential history
- Down payment gift letter, if applicable
A few caveats…if you are planning on using part-time employment income to qualify, you will need to have had that job for 2+ years.
Secondly, if you are commissioned or are using bonus income for qualification purposes, you will need to show a 2 year history of receiving those.
Self Employed Borrowers
If you are considered self-employed (or a 25% or more owner of any company from which you derive income), here’s what else will be required, in addition to the list above:
- 2 years Federal tax returns, business and personal
- Year-to-date profit and loss
- Copy of business license
A few other consideration for self-employed borrowers…lenders will require that you’ve been in business for yourself for 2 years, minimum.
Also, qualification income will be based on net profit from your tax returns, not gross sales receipts.
Investment Property/2nd Home Buyers
If you already own a home and are looking to purchase an investment property, your lender will require a few more things:
- Schedule of Real Estate Owned – information about the home’s value, occupancy status and purpose, as well as the property’s monthly expenses. You will also need to provide information about your current mortgage, including the lender’s name and account number, loan type, monthly payment amount, outstanding balance and credit limit.
- The Schedule E from your 1040 tax return that shows owned properties that are currently rented.
- Any investment properties that do not show on your Schedule E will require a copy of the lease of that property.
- If you are moving to a new primary residence and will be leasing the home you are in now, the lender will require a signed lease agreement AND a copy of the deposited first month’s rent and security deposit.
Why So Much Documentation?
In today’s regulatory environment, the paperwork requirements can seem quite intrusive.
It seems like they need to know everything about you, including your blood type!
Many of today’s buyers are told by friends and family that the process was much, much easier when they bought their home ten to twenty years ago…and they were right!
There is one main reason that the loan process is much more burdensome for today’s buyer than in prior years…
It’s that the federal government has set new guidelines that now demand that lenders prove beyond a doubt that borrowers are capable of paying the mortgage regularly.
During the run-up to the housing crisis years ago, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home, so new protections were put in place to make sure this can’t happen again.
In Conclusion
Although the process can be cumbersome, if you partner with the right lender, things should work out just fine. Do reach out to me, as it would be my pleasure to be your “Lending Coach” through the purchase process.
The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.
