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Helpful Hints During The Mortgage Loan Process
Follow these tips to build a solid foundation for successful financing:
- Do not open or apply for any new Installment loan accounts of any type
- Do not open or apply for any new credit cards
- Do not exceed your existing credit card high balance limit
- Do not increase existing credit lines
- Do not close any of your existing unused credit cards
- Any credit report inquiries made may result in a drop in your credit score. This would include cell phone, cable/satellite service, credit card of any type, car loan, bank overdraft protection, bank loan, etc. Do not apply for any type of credit during this mortgage process
- Any inquiries made into your credit that are not shown on the original credit report must be explained in writing to prove that no new debt has been incurred
- Credit card balances can, and will, affect your credit score. The amount owed on your credit card compared to the available balance is a determining factor of your credit score. Do not pay off your balance or add to your balance without consulting your loan officer first. A small change in the percentage owed may affect your score.
Have you gotten your Pre-Qualification yet? Do you know why it's a crucial first step in buying a home?
What is Pre-Qualification?
Based on home lending experience over the years, regulators and lenders have established a number of qualifying rules for home mortgage lending. Some of these rules affect the amount you may borrow. Some have to do with size of monthly payments.
The pre-qualification form is a simple, easy way for you to find out ahead of time if you will qualify for a home loan, the loan amount you will qualify for, and the kind of monthly payments you can afford. A lender takes a quick look at your overall finances, including debt, income, assets, etc. Based on this information, the lender tells you whether you meet the basic requirements for a home loan, and if so, how much you may qualify to borrow. You receive a pre-qualification letter, which is helpful throughout the process of looking at homes and putting in offers.
Here’s WHY Pre-Qualification is so important:
- In today’s home buying market, buyers generally need a Pre-Qualification Letter in hand before a Realtor will begin showing you homes. We’re in an environment with a low inventory of homes for sale and a high volume of potential buyers searching for their dream home. To stay on their toes, Realtors are working only with serious buyers who have a pre-qualification letter in hand.
- Most sellers are not even considering offers that exclude a pre-qualification. In many cases, sellers are also buyers - they are upsizing to a bigger home, downsizing to a small home, or moving to a new town. With so many competing buyers in the market, sellers need the selling process to go smoothly and they will most likely only entertain offers from buyers who already have their financing in place.
- When you know how much you are able to borrow, the steps involved in the buying/selling process are like a well-rehearsed dance. You and your Realtor will be able to smoothly navigate each step and turn of the offer and contract negotiation process with fewer chances of stumbling along the way.
- A pre-qualification letter takes the stress and panic out of the home buying process. You can concentrate on one thing at a time, giving your undivided attention to the important decisions you need to make regarding home selection, home inspections, legal ramifications, and more.
- When you are a pre-qualified borrower, it speeds up the loan process. Once you have found a home and signed a contract, the final step is the loan process, and while a pre-qualification letter is not a guaranteed loan offer it IS a tentative offer to lend to you up to a certain dollar amount. The next step (gathering the required documents to ensure accurate approval) should go more quickly for everyone because you’ve already done a lot of the legwork before making the offer.
Documentation You Will Need When Applying For A Mortgage Loan
The documents your loan officer requires will vary, but may include:
- A purchase contract, if you have one, for the home you wish to buy
- Social Security numbers or individual taxpayer identification numbers for borrowers
- Home address(es) for the past two years
- Account numbers and balances of checking, savings, retirement, and credit card accounts
- Address of your financial institution
- Checking and Savings account statements for past 2-3 months
- Recent pay stubs, W-2s, or other proof of employment and income verification
- Federal income tax returns for past two years
- Other income you receive (child support orders, Social Security award letters, etc)
- Balance sheets and tax returns if you are self-employed
- Divorce settlement papers if applicable
- Cancelled checks for rent or utility bill payments to show payment history and amount of revolving debt
- Information on other consumer debts (credit cards, car loans, furniture loans, student loans, etc)
- Gift letters, if you are using gifts from relatives or organizations to help cover down payment or closing costs. Letter must state that the money you received is a gift and will not have to be repaid