For part 3 of this blog series, we’ll be going over some additional documents that you’ll need to get before the loan process begins. In part 1 and part 2, we’ve gone over credit reports and checking your credit scores, having money saved up for closing costs, income and asset documentation gathering, as well as other additional items. You’ll need a few more documents before you’re completely ready to go!
- 1 Minute | No Hard Credit Check
Gift Letter And Gift Sources
The gift letter, if applicable, is one of the items you can come to the table with. If you are receiving a gift for the down payment on the home or to help with other closing costs, that money will need to be supplied with a gift letter that is completely filled out and a copy of the donor’s bank statement.
Remember that the underwriter will need an official bank statement from the donor and from you as well once the gift check is deposited. The underwriter will also need a copy of the check, just to make sure that the source is all appropriately identified.
Proof of Rent Payments
The underwriter may require proof that you’ve paid your rent on time for the last 12 months, especially if your credit score is on the lower side, and/or your credit history is not seasoned. For borrowers who do not have any previous credit history, this step is going to always be required.
Most underwriters will accept the payment history print out from your landlord that shows the last 12 payments made. You can usually get this through your apartment’s website where you make your payments.
If you pay your landlord directly and cannot get copies of the check, the next best way to prove your payments are by going to the bank and having the bank teller print out a sheet showing your rent withdrawals. This only works if all of the rent payments are the same amount. If there are any differences, you’ll need to provide an explanation as to why the rent withdrawals are different amounts.
The last possible option is to provide 12 months of bank statements, but honestly, that can create a larger problem than necessary. Only use this option if you cannot do the other options. Because, unfortunately, if the underwriter decides to ask you to source every deposit into your account for the past year, you’ll need to come up with an explanation and a deposit source. This can be pretty hard to do when you’re asked to explain a random deposit into your account from 8 months ago!
While this guide is for first time home buyers, if you happen to be reading this to brush up on the home buying process because you wish to refinance or buy another home, keep those mortgage bills. The underwriter may require the most recent mortgage bill to show exactly what’s left to be paid, and if you’ve incurred any late fees.
- 1 Minute | No Hard Credit Check
Homeowner’s Insurance Quotes
Most lenders will not allow you to close on a home without home insurance and/or flood insurance put into place. This is to insure that if there are any accidents or unforeseeable circumstances that leave your house damaged or completely destroyed, the mortgage company can rest assured they can still be paid.
Homeowner’s insurance also insures if somebody gets injured in your home, as well as the area surrounding the home. The only time that this doesn’t happen is when you get home insurance for condos, which only covers everything inside the walls. This coverage is called the dwelling coverage amount.
Mortgage lenders will typically require that policy covers the full amount of the loan amount. This is to make sure that if in the case you do lose your home, insurance can cover the full amount of your mortgage.
Unfortunately for you, this means that if you still owe money on the home, this will leave you with a bit less in your pocket. However, this also insures you won’t incur late fees or any other dings to your credit because you have defaulted on your mortgage for a property that could not be rebuilt.
For the most part, Flood coverage is only required if your home resides in a flood zone. This information is pulled by your lender as well as put on the appraisal report.
Hopefully this blog post has been helpful and will help you prepare for buying a home. Each loan application is different, so some items may not even be asked for depending on your loan program. But it’s best to be prepared, just in case!
