For this blog update, we’ll be discussing on what you’ll need to prepare for the Home Loan process! We’ll be going over what you should do before applying, what documents you should prepare beforehand, and what documents that you’ll need for the remainder of the mortgage loan process as well, all the way up to closing. Let’s get you started! Before you apply, you should:
- 1 Minute | No Hard Credit Check
Save Up Enough Money For The Whole Loan Process
Make sure that you have the funds required to go through this process. There are a few out of pocket items you may need to pay for, in addition to the down payment for the home and showing reserves. These items are usually the Earnest Money Deposit and the Appraisal Report.
The Earnest Money Deposit is negotiated with the purchase contract, and can be anywhere between $250 and $3000, depending on the price of the home. Usually, the Earnest Money Deposit is around $500 for the majority of the loans we see.
The Appraisal Report is easier to plan for. The appraisal report will most likely be between $300 to $500. The only unforeseeable issue is if the loan program is FHA or USDA, and the appraiser finds problems that need to be remedied. This can lead to the need of a completion report, which can cost another $100-$250, depending on the Appraisal Management Company.
Check Your Credit!
We cannot stress this one enough. Checking your credit before you apply for a mortgage loan makes sure that no credit items catch you by surprise. All mortgage lenders use your credit score and report to see just how “risky” of a borrower you will be. The higher they view your risk, the higher your chances at either an increased interest rate, or a statement of denial. It’s a very good idea to make sure your credit health is as healthy as possible before applying.
By checking your credit report with the three major credit reporting agencies, TransUnion, Equifax, and Experian, you can make sure there aren’t any mistakes that need your attention. Remember, you get one free report from each agency once per year, so it’s a good idea to request one before beginning the mortgage lending process.
Print or Make Copies Of Your Pay Stubs
The underwriter requires at least the most recent 30 days of pay stubs to help validate income and make sure there aren’t any additional deductions being made, like child support or alimony. If you do not receive pay stubs and only have paychecks, a copy of the front and back of the check is fine. You can get check image copies from your bank.
2 Most Recent Months of Official Bank Statements
The underwriter requires the 2 most recent months of bank statements to get an idea of your income and cash flow. Any large deposits that are not payroll will most likely need to be sourced and explained.
Depending on the loan program and the sales price of the home, a large deposit can be defined as $100 or $10,000. So if you make any large deposits into your account, it’s a good idea to keep the source of that deposit nearby, just in case the underwriter asks for it. A source for a large deposit can be the front and back of a check copy, an invoice, or a bill of sale or receipt for personal items sold.
For example, sometimes people have tag sales or moving sales to get ready to buy a home. Since these items are personal items, it’s a requirement that these deposits can be sourced, individually. You can source them by providing a bill of sale for each item sold or a receipt, and an advertisement for the item or a similar item being sold. If the item sold was a vehicle, the Kelley Blue Book value of the car is acceptable as a source
Transaction Histories count as official bank statements ONLY when the following requirements are met:
- Shows Bank Name or Logo
- Has Account Holder’s Name
- Last 4 digits of the account number
- Shows a running balance
- All Pages Are Included
- Stamped and Signed on all pages by the local bank teller
- 1 Minute | No Hard Credit Check
The underwriter will require that a transaction history has all of these to be used as an official bank statement. You’ll need “official” statements to show cash to close and for your first two bank statements used for submission.
Be sure to check out part 2, as we go over a few more documents that you can get to help prepare for the mortgage loan process!
