5 Things To Consider Before Applying For A Mortgage Rate

Dated: 09/28/2018

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Nothing is more disappointing than finding your perfect new home only to discover you don't qualify for the mortgage loan needed to purchase it. For those of you who don’t know, Pre-Approval is a system of qualifications a buyer must meet before applying for a home mortgage loan. Pre-Approval is the most crucial preliminary step for prospective homeowners before purchasing their new home. If you're not planning on paying for your dream home with cash, then this applies to you!

Hiring a trusted lender involves more than merely acquiring a document stating you’re approved for a loan. When you acquire the services of a lender, you're gaining a teammate who represents your best interests and serves as a guide through the transaction process. Here are the five vital pieces of information you will need to provide your lending agent when applying for a home mortgage:

Proof of income - Often your proof of income must include your W-2 forms from the previous two years, most recent pay stubs, and additional documentation such as alimony, bonuses, 1099 forms. You also may be asked to provide copies of checks, direct deposit forms, and your two most recent tax returns. Lenders use this information to determine the stability and consistency of your funds. The more stable your savings and checking accounts, the more reliable you are as a borrower!

Also, when dealing with tax returns, lenders become worried if your income spikes one year and falls the next because this could indicate you might have trouble consistently paying for your mortgage.

Verification of your assets  - Your lender will want to know what liquidized assets you possess such as checking accounts, savings, stocks, IRAs, 401Ks, mutual funds, and bonds. This will provide them with a picture of your financial security, especially in emergency situations. Cash is considered to be an asset, but it must be seasoned into your checkings or savings account, meaning it must remain in an account for a minimum of two months. This shows your lender you are a responsible saver and you are prepared for the worst case scenario in regards to your mortgage.

Some lenders will allow your pre-approval to be based on your assets, depending on if you have low income or credit. However, these assets must be accessible and capable of being sold quickly.

Your credit history - An excellent credit report will indicate that you make payments on time, and often means you will be approved for a lower interest rate and downpayment. Thankfully, there are wonderful programs on the market that monitor your credit for free, such as Credit Karma or Credit Sesame. Once you obtain your report, be sure to look at your FICO score to understand the work you need to do if you need to rebuild your credit.

Typically, lenders will give the best interests rates to those with excellent credit (740-799). If you have anything below a 740 but want to decrease your payment, you can do so by increasing your downpayment. Most lenders will require you to have at least a 650 credit score for pre-approval but are willing to work with buyers below that range.

Verification of your employment - Your lender will contact your employer directly to verify your employment and your salary, but you should still prepare your pay stubs for the previous month. Lenders want to be clear on the stability of your stream of income. For self-employed individuals, lenders will often require alternative documentation such as bank statements indicating personal cash flow or annual tax returns. If you have recently switched jobs, you will likely have to provide your previous employer's contact information.

Lenders commonly struggle to get in touch with employers. To help this process along, be sure to be as transparent as possible with your boss and your lender. Keep in mind your mortgage loan can be negatively affected by any inaccuracies, so double check any information provided by your employer or lender.

Additional documentation (Social Security, Driver's License, etc.) - Your Driver's license or U.S. Passport will be required, but other possible documentation such as rent payments, divorce papers, bankruptcy documents, foreclosure records, and gift letters must be included as well.

Here is an alphabetized checklist of all of the documentation you will likely need to provide your lender: 

  • 30 days of pay stubs

  • 60 days of bank statements

  • Asset account statements (retirement savings, stocks, bonds, mutual funds, etc.)

  • Birth certificate 

  • Driver’s license 

  • Divorce papers (if using alimony or child support as qualifying income)

  • Employment letters

  • Financial gift letter (if applicable)

  • Income tax returns

  • Investment account statements from the previous two months

  • List of monthly debt including credit cards and other loans

  • Records of overtime, bonuses, or any differential pay

  • Rent Payments

  • Social security card

  • W-2 tax returns from the previous two years

  • U.S. passport

  • Year-to-Date profit and losses report or 1099s if self-employed

If you’re currently in the market for a trustworthy and reliable lender in the Puget Sound area, Steven Wright of Eagle Home Mortgage is your guy! 

Here at PNW Real Estate, we have closed dozens of successful transactions alongside Stephen Wright. He has proven time and time again how dedicated he is to keeping our home buyers best interests at heart.

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Joshua Meeks

Joshua is the founder and Listing Specialist on the PNW team. His passion is to raise the standard of excellence in the real estate industry. He has a vision it create opportunity for homeowners and r....

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