Purchasing a house? Bring on the paperwork! And don’t forget your favorite pen. Qualifying, securing, and signing a mortgage can be multi-faceted, confusing, and stressful – especially for a first-timer. Fear not, new homeowner. At the end of road is home, sweet, home…a home of your very own.
Step 1. Clean up your credit report
Get a copy of your credit report and make sure it's accurate. If not, dispute incorrect information. Correcting en error can take time, so don’t wait until the last second to handle.
Step 2. Gather your own paperwork
Before you qualify for a mortgage, your potential lender is going to require a lot of information from you, including:
- All of your bank information, from its name and address to account numbers and statements
- Investment statements for the past three months
- Proof of employment and income in the form of pay stubs and W-2 withholding forms
- If you’re self-employed, balance sheets and tax returns
- Consumer debt information, as in account numbers and amounts due
- Divorce settlement papers, if applicable
- Authorizations allowing the lender to verify your income, bank accounts and credit
Step 3. Prequalify…Or Seek Preapproval
- Prequalification is the lender’s determination of how large of a mortgage you might qualify for based on its ‘standard ratios’. For instance, your ratio of monthly housing expenses versus your gross monthly income should not exceed 28 percent.
- Preapproval is the amount a lender will commit to based on your income and credit, which they’ve already checked out. It also gives you more credibility as a buyer, and may differentiate you from other potential buyers
Step 4. Finalize the application
Within three business days of applying for your loan, the lender must provide:
- Information on the mortgage's effective rate of interest, or annual percentage rate (APR)
- Consumer information on adjustable rate mortgages
- An itemized ‘good-faith’ estimate of your closing costs
Step 5. The lender’s appraisal
Your home will serve as collateral for the loan, therefore the lender will order a market value appraisal of the property. Also, if your down payment is less than 20 percent of the value of the property, you’ll require private mortgage insurance.
Step 6. Mortgage approval
If the lender has not already verified your employment and bank accounts for the preapproval process, they’ll do so now – as well as obtain and evaluate your credit report.
Otherwise, that’s it! Congrats! You’ve got a grown-up, ‘real life’ mortgage to pay off.
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