A Borrower’s Checklist
The process of obtaining a home loan can be both exciting and daunting. As a potential borrower, being well-prepared is key to a smooth and successful application process. To help you navigate through this journey, here’s a comprehensive checklist outlining the essential elements needed for a home loan application:
1. Sales Contract and Property Information
The first step in applying for a home loan is having a sales contract for the property you wish to purchase. This contract should include all relevant details such as the property’s address, purchase price, and the names of all parties involved. The lender will require this information to initiate the loan process.
2. Personal Information
Your personal details are fundamental to the loan application. Prepare the following documents which you will need for your mortgage lender.
- Identification: a copy of your valid government-issued ID, such as a passport or driver’s license
- The name and address of current landlord/mortgage holder (if applicable)
- Social Security information which will be used to verify your identity and credit history
- A dollar amount for what you pay now for housing
- Contact Information: provide your current address, phone number, and email address
3. Income and Employment History
Lenders want to ensure that you have a stable income to support mortgage repayments.
If you are employed by someone else, you may be asked for:
- Proof of Income: recent pay-stubs signed by a company rep. You many need a month’s worth of pay-stubs
- A minimum two years of employment history and contact information for those employers
- W-2 forms, or tax returns for the last two to three years (especially for commission income and/or unreimbursed expenses)
- Employment History: provide a record of your employment history, including any job changes. If you were unemployed during the last two years (or employed less than two years), provide a letter that explains this gap
If you are self-employed, you will be asked to show:
- That your business is profitable
- That your business is well-managed (you will need to show that revenue has increased and/or costs have decreased)
- Your company Balance Sheet (Profit & Loss statement)
- Personal tax return for two years
- Corporate tax returns if applicable
Alternate income you may be asked to prove:
- Pension income
- Social security income
- Other form of income not generated through employment such as trust funds, etc.
4. Overall Financial Health
Your financial standing plays a significant role in determining your loan eligibility. Prepare the following:
- Assets: Documentation of your assets, including bank statements, investment accounts, retirement funds, and details of any real estate you own.
- Liabilities and debts: Lenders want to know how much you owe and how well you pay back loans. Your credit history will show this information. If you have past issues with bad credit, you will need to provide a written explanation about what happened. If you have had any bankruptcies in the past seven years, you’ll need to provide documentation that fully details it, as well as legal proof of discharge of the bankruptcy from your credit history and verification that you have satisfied the waiting period to apply for a mortgage. If you own other land or have other mortgages, you will need to provide tax and insurance documentation for them, as well.
Compile a list of all outstanding debts such as student loans, credit card balances, and car loans.
5. Any Other Pertinent Information
a.) Credit Score: Check your credit score beforehand, as this greatly impacts your loan terms. A higher credit score generally results in better interest rates and loan options.
b.) Down Payment: Be prepared to provide the down payment, which is typically a percentage of the home’s purchase price.
c.) Loan Options: Research and understand the various loan programs available. Compare interest rates, terms, and conditions to choose the one that best suits your financial situation.
d.) Paperwork: Keep all documents organized and readily accessible to speed up the application process.
e.) Pre-approval: Consider getting pre-approved for a loan to strengthen your negotiating position with sellers.
By preparing this comprehensive checklist, you’ll streamline the home loan application process and increase the likelihood of securing your dream home. Remember, each lender may have specific requirements, so it’s essential to communicate with them directly to ensure you meet all their criteria. Happy house hunting!
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