7 Things You Should Know While You’re Applying for a Home Loan

The time has come - you’re ready to enter the next chapter in your life with a new home. But what should you make sure to do and make sure you avoid during this process? You have questions and we have answers.

What documents and records do I need while applying for a mortgage?

Tax returns - Lenders generally want to see 1-2 years worth of tax returns to make sure your annual income is consistent with your earnings.
Proof of income - Lenders need to see your proof of income from the past month or so to get an idea of what you are currently earning. This can include W-2 forms, pay stubs, and alimony or child support documents.
Bank statements and other assets - This can include retirement and investment accounts and insurance such as life insurance. Lenders request this information to make sure you have several months’ worth of reserve mortgage payments in your account in case of an emergency.
Credit history - Lenders will pull your full credit report to evaluate what kind of risk you are. If you have any negative items, be prepared to write an explanation.
Gift letters - If you're receiving any gift money from relatives, they'll need to sign a gift letter and an account statement evidencing the source, which must be "seasoned" funds.
Renting history - For buyers who do not already own a home, lenders may request proof that you can pay on time. If you’re a homeowner and you’re selling your current residence, be prepared to show your HUD-1 Settlement Statement.
Other records - Lenders may ask for additional records depending on your financial situation. These may include a divorce decree, bankruptcy or foreclosure records, and alternative data to help a thin credit file such as utility, cell phone, rent, cable or other regular bill payments.
Government issued photo ID

While applying for a mortgage, keep all your financial records close at hand in case updates are requested. Continue saving all incoming account statements and keep all numbered pages of each statement. (Example: 8 of 8)

Keep in mind: Underwriters require more documentation than in the past. Even if requests seem silly, intrusive or unnecessary, remember that if they didn't need it, they wouldn't ask.

Which deposits do I need to document while applying for a mortgage?

To play it safe, you should document all deposits - especially large ones. Primarily large (but sometimes even small) deposits must be sourced unless they are identified. A large deposit is defined as a single deposit that exceeds 50% of the total monthly qualifying income for the loan. With an FHA Loan, a large deposit is a deposit amount that exceeds 1% of the property sales price.

Make copies of checks and deposit slips. Keep your deposits separate and small and avoid depositing cash.

What happens to my mortgage approval if my credit score changes?

Keeping your credit score in check is important to the process. Your credit report may be pulled again, and any negative change to your score could cause your interest rates and costs to go up as a result. Alternatively, if your credit score increases, some mortgage lenders will let you reprice your rate with the new updated credit score and could result lower rates.

Will new lines of credit affect my mortgage application?

Yes. Changes in credit can cause delays, change the terms of your financing or even prevent closing. If you must open a new account (or even borrow against retirement funds), consult with your agent or loan officer first.

Can I transfer credit card balances before or during the mortgage loan process?

If you are planning on transferring your credit card balances, it’s ideal to wait until after you close on your home. Transferring credit card balances can hurt your credit score, which may affect your interest rate and costs.

Can I change jobs while applying for a mortgage?

Changing jobs while in the process of applying for a home loan or before you close on your home may be detrimental to your application. Probationary periods, career or even status changes (such as from a salaried to a commissioned position, leave of absence or new bonus structure) can be subject to very strict rules.

If you change jobs while you’re applying for a home loan, underwriters have to begin the process all over again and base your application based off your new job. If you are changing professions, lenders may see this as a less stable employment history. In most cases, it is best to change jobs well before or after the home loan process.

Should I get pre-approval for a mortgage loan before I start shopping for a home?

Yes! If you are serious about purchasing within the next 3 months, you should always apply for a home loan and get pre-approved before you begin the home shopping process. This will give you a better understanding of what you can afford, budget and financially plan for. This is the first big step in homeownership!

The last thing you should never do while applying for a mortgage is be afraid to ask questions! If you have any questions, your loan officer and agent have your best interest at heart and are here for you throughout the entire process.