Applying for a Home Loan: How to Get Prepared

Written by  //  October 18, 2012  //  Financing  //  Comments Off on Applying for a Home Loan: How to Get Prepared

It’s the greatest feeling in the world; you have a down payment and are ready to start looking for your first home. But even if a mortgage calculator tells you that you can afford a home, this doesn’t mean you will necessarily qualify for mortgage.

Since the housing market crash of 2007, regulations on who will qualify for a home loan have tightened up. It’s not as easy as it used to be to move from renting to owning a home, even if you do have a decent down payment. The process is a lot more involved and complete, and although it isn’t unreasonable, it can be a little annoying. This is why it’s a good idea to get prepared for the application process before diving in head first. Know the ropes beforehand, and the ride will be a lot smoother.

Here’s how to ready yourself…

Check Your Credit Report

Use a free credit reporting resource to obtain a copy of your full credit report. Peruse it for any mistakes and try to remove those mistakes before applying for your loan. Currently, to be approved for a home loan, you must have an average minimum credit score of 620. If you aren’t there, find a personal finance advisor who can help you find ways to raise your credit score before you apply for you loan.

Ask Your Loan Officer To Explain Everything

Before you agree to supply any information or sign any forms, ask your loan officer to explain the entire process to you. Listen attentively, and bring a notebook and pen to write any questions you may come up with during the discussion. Be sure that all of your questions have been answered satisfactorily before proceeding and that you have a good understanding of the process.

Gather All Your Documents

Once you have been made aware of the required documents, organize them into a single folder. Although additional documents may be asked for, most mortgage lenders require you to prove your income by supplying your pay stubs from the last two months and your W-2s from the last two years. If you are self-employed, you will be asked to supply proof of business income and taxes paid from the last two years. Copies of your bank statements from the last 60 days will also be required.

Don’t Hide Anything

Are there any financial hiccups in your past? If so, be prepared to provide a written explanation telling why it happened and how you fixed it. If there is anything questionable on your pay stubs, tax documents or bank statements, be sure to address those issues with your loan officer before sending them off for assessment. Also, if you have changed jobs frequently within the last few years, be prepared to explain those moves. Remember, these questions are not asked because you did something wrong, they are asked because the lender wants to get to know more about you before supplying you with a loan.

One the application has been sent off, take a deep breath and wait. The screening process can take anywhere from a few weeks to longer than a month, depending on your individual situation and the mortgage company you are working with. If it’s taking longer than expected, don’t worry. This doesn’t necessarily mean you won’t pass the test.

As a regular contributor to several finance websites, Stella Walker uses her knowledge of economics, consumer trends and budgeting to help readers better understand their own personal finance issues. Feel free to leave your questions and comments for her below!

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