Documentation Needed to Get Pre-Qualified for a Mortgage
Documentation Needed to Get Pre-Qualified for a Mortgage
1. Last two years of W-2 forms or business tax return forms if you're self-employed.
2. Copies of at least two pay stubs for every person signing the loan.
3. Copies of at least two months bank or credit union statements for both checking and savings accounts.
4. Copies of personal tax forms for the last two to three years.
5. Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.
6. Copies of your most recent 401(k) or other retirement account statement.
7. Documentation to verify additional income, such as child support or a pension.
8. Account numbers of all your credit cards and the amounts of any outstanding balances. A lender can easily get this information by pulling your credit report.
9. Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.
10. Addresses where you have lived for the last five to seven years, with names of landlords if appropriate.
8 Steps to Getting Your Finances in Order
1. Develop a family budget. Instead of budgeting what you’d like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses such as car repairs, illnesses, etc., as well as predictable costs such as rent.
2. Reduce your debt. For the most part, lenders don't want your total debt to exceed 45 percent of your income. Keeping this in mind, it's wise to get the balances of your installment debt—car loans, student loans, revolving balances on credit cards down as much as possible.
3. Get a handle on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one to two months. You’ll probably see some great ways to save.
4. Save for a downpayment. Many homebuyers can qualify for a mortgage with only 3.5% down (3.5% of the purchase price)—or even less in some cases.
6. Create a house fund. Don’t just plan on saving whatever’s left toward a downpayment. Instead decide on a certain amount per month that you want to save, then put it away as you pay your monthly bills. This will prevent stress and panic when things break on your new home.
7. Keep your job. While you don’t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.
8. Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly if you are able.
6 Tips to Get Your Credit Ready for Purchasing a Home
Credit scores, along with your overall income and debt, are a big factor in determining if you’ll qualify for a loan and what loan terms you’ll be able to qualify for. The better your credit score is, the better annual percentage rate (APR) you will qualify for.
1. Review your credit report and correct errors. You could be paying for someone else's poor financial management due to an error. Other times your credit card companies may misreport information pertaining to your account.
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Visit AnnualCreditReport.com to view your credit report from all three consumer credit reporting agencies: Experian, Equifax, and Transunion (May be checked free one time per year, credit scores are not free)
2. Keep your credit card balances low. If possible, pay off the entire balance every month. Transferring credit card debt from one card to another has the potential to lower your score.
3. Do not max out your credit cards. Keeping your debt to credit ratio below 50% is best. (Credit card balance divided by Credit limit)
4. Don’t order items for your new home you’ll buy on credit—such as new furniture or appliances—until after the loan is approved and you have closed (and the transaction has funded) on your home. I cannot stress this fact enough! Your lender will check your credit report right before closing to make sure new debt was not added to your credit. If new debt appears on the credit report, this could cause your loan to be denied.
5. Resist the urge to "save 10%" by opening a new credit card account. Having too much available credit can lower your score.
6. Shop for mortgage rates all at once. As with credit cards, having many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted within a 30 day period. TIP: It's best to compare different lenders on the same day because interest rates can change daily. It is expected that a consumer would shop different mortgage rates and fees, especially when considering most people end up with a 30 year loan.
Making the Decision: Single Family Homes Vs. Townhomes and Condos
Condominiums and townhouses offer an affordable option compared to single-family homes in most areas. But consider these facts before you buy:
1. Storage. Some condos have areas to store extra belongings, but usually there are no attics or basements to hold extra belongings.
2. Outdoor space. Yards and outdoor areas are usually smaller in condos, so if you like to garden or entertain outdoors, this may not be a good fit. However, if you hate yard work or don't have the time to deal with a yard, this may be perfect option for you.
3. Amenities. Many townhome and condos have community swimming pools, fitness centers, and other facilities that would be very expensive in a single-family home. This is why a homeowner's association (HOA) can charge $50.00 per month and up to live in their communities.
4. Maintenance. Many condos have onsite maintenance personnel to care for common areas.
5. Security. Many condos have keyed entries. Plus, you’ll be closer to other people in case of an emergency.
6. Reserve funds and association fees. Although HOA fees generally help pay for amenities and provide savings for future repairs, you will have to pay the fees agreed to by the condo board, whether or not you’re interested in the amenity. Another possibility is a "special assessment." For example, if the HOA wants to paint all the building or repair the roofs and there are no funds in reserves for these projects, they can assess a special assessment to each individual owner within the community to pay for the repairs.
7. Resale. The ease of selling your unit is more dependent on what else is for sale in your building, since units are usually fairly similar. Single-family homes are usually more individual, so even if there are others for sale in your area, they probably won’t be exactly like yours.
8. Freedom. Although you have a vote, the rules of the condo or townhome association can affect your ability to use your property. For example, some condos and/or townhomes prohibit home-based businesses. Others prohibit pets. ALWAYS Read the covenants, restrictions, and bylaws of the condo carefully before you make an offer or within your home inspection contingency period.
9. Proximity. You’re much closer to your neighbors in a condo or townhome. Look at profile of other owners be sure you’ll be comfortable. Try to meet your closest prospective neighbors if possible and remember, you may have wonderful neighbors right now, but they could always sell and or rent it and you cannot choose who your new neighbors will be.
So You've Decided on a Condo, What Should you Do Next?
Before you buy, contact the condo board with the following questions. In the process, you’ll learn how responsive and organized the members or management company are.
1. What percentage of units is owner-occupied? What percentage is tenant-occupied? Generally, the higher the percentage of owner-occupied units, the more marketable the units will be at resale.
2. What covenants, bylaws, and restrictions govern the property? What grandfather clauses are in place? You may find, for instance, that those who buy a property after a certain date can’t rent out their units, but buyers who bought earlier can. Ask for a copy of the bylaws to determine if you can live within them. And have an attorney review property docs, including the master deed, for you.
3. How much does the association keep in reserve? How is that money being invested?
4. Are association assessments keeping pace with the annual rate of inflation? Smart boards raise assessments a certain percentage each year to build reserves to fund future repairs.To determine if the assessment is reasonable, compare the rate to others in the area.
5. What does and doesn’t the assessment cover—common area maintenance, recreational facilities, trash collection?
6. What special assessments have been mandated in the past five years? How much was each owner responsible for? Some special assessments are unavoidable. But repeated, expensive assessments could be a red flag about the condition of the building or the board’s fiscal policy.
7. How much turnover occurs in the building?
8. Is the project in litigation? If the builders or homeowners are involved in a lawsuit, reserves can be depleted quickly.
9. Is the developer reputable? Find out what other projects the developer has built and visit one if you can. Ask residents about their perceptions. Request an engineer’s report for developments that have been reconverted from other uses to determine what shape the building is in. If the roof, windows, and bricks aren’t in good repair, they become your problem once you buy.
10. Are multiple associations involved in the property? In very large developments, umbrella associations, as well as the smaller association into which you’re buying, may require separate assessments.
Why Title Insurance Is Important
1. It protects your ownership right to your home both from fraudulent claims against your ownership and from mistakes made in earlier sales, such a mistake in the spelling of a person’s name or an inaccurate description of the property.
2. It’s a one-time cost usually based on the price of the property.
3. It’s usually paid for by the sellers.
4. There are both lender title policies, which protect the lender, and owner title policies, which protect you. Your lender will most likely require a lender policy.
5. Discounts on premiums are sometimes available if the home has been bought within only a few years since not as much work is required to check the title. Sellers can ask the title company if this discount is available.
Quick, Helpful Tips
1. Find a real estate agent that’s educated, experienced and likeable. Homebuying is not only a big financial commitment, but also an emotional one. It’s critical that the agent you chose is both skilled and a good fit with your personality. You might find younger real estate agents are more available to take your panicked phone calls after hours and on weekends while the older real estate agent turns off his or her phone after business hours.
2. Accept that no house is ever perfect. Focus in on the things that are most important to you and let the minor ones go.
3. Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price may lose you the home you love.
4. Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a newly constructed home, there will be some costs. Don’t leave yourself short and let your home deteriorate.
5. Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big commitment, but it also yields big benefits. Because it's such a big decision, sometimes people second-guess themselves after they've made this important decision. Remember, this is a completely normal feeling to have and almost every other person who has purchased a home has felt the same way as you.
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