Choosing the perfect home is only a small portion of the home buying process – there is a great deal of time and preparation that is required, even before you start looking at the homes available on the market. Not only must you strengthen your finances, but you must also gather all the necessary documentation far ahead of time to review yourself, and to submit to the appropriate authorities to secure the perfect mortgage. Below are a few guidelines on what you need to do to qualify for a mortgage.
What You Need to Qualify for a Mortgage
There are some differences in what you will need to qualify for a mortgage according to the type of loan you take out from a given lender, however, there are certain elements that remain the same across all lending institution’s criteria. You will need:
Photo ID. Of course, lenders need to be sure that you are who you say you are. This is the most basic requirement across all loans. Make sure you have at least two forms of government-issued photo identification (some lenders may require three – make sure to review the requirements closely).
Proof of Income. This is one of the most important elements in qualifying for a mortgage and one of the first factors that potential lenders review. Your monthly income is a direct illustration of how much you are capable of handling in a monthly mortgage payment. If you cannot afford the monthly payments, you will not qualify for a mortgage.
Most lenders prefer that your housing costs remain at 28% or less of your monthly income, before tax – others may allow up to 31%. Take a look at your monthly income to determine if this is plausible for you.
You can provide proof of income in the form of pay stubs or W-2s (homebuyers who are self-employed should use copies of bank deposits or their Form 1099.).
Credit Report. Lenders need to gather as accurate a picture as possible of your financial circumstances. This requires that they review your credit report in addition to other personal information. Your credit report will give them a more thorough overview of your financial habits, as far as spending, maintaining revolving and installment debt, etc.
They may look at open credit accounts, the number of inquiries on your report, and any collections in your name, just to name a few things.
Other Information Your Lender Will Need
Lenders need to review a great deal of information before providing you with the funding to purchase a new home. In addition to the documentation listed above, they may also require:
- Tax Returns: To confirm that your income is consistent throughout the year, they’ll need to review your tax returns. You may need to sign Form 4506-T to allow third-party access to your tax returns.
- Proof of Assets: A lender may need to review any of your assets to fully construct your risk profile as a borrower.
- Rental History: This will show lenders whether you are consistent in keeping up with housing payments or not.
Along with all of this, you will, of course, need to provide a down payment as well. The required down payment can range from a low of 3.5% or highs of 20%, depending on the price of your chosen home. To prepare you in compiling all the information you need and determining the best mortgage for you, get the help of a mortgage professional. They will work with you to ensure you secure the best rates for your future.