Buying a home today is a significant milestone for the youth. Preparing one’s mortgage application and all related documents are essential steps in the process. It is important that these steps be followed with all seriousness and caution when buying a mortgage home. Continue reading to learn all about the complete checklist for Mortgage Home Buying.
Complete Checklist for Mortgage Home Buying
There are a few essential steps required in order to buy a mortgage home in the US. The following have been listed below.
1. Mortgage Application Process
The first step is to fill out the Uniform Residential Loan Application. This is a standardized form required by lenders. This application collects personal and financial information to determine the eligibility of the individual for a mortgage. This is like the initial step where one needs to share basic information about themselves with the bank.
Once the application is submitted, the lender will ask for various supporting documents. These are required to verify the information provided in the application. These documents help the lender assess if the individual can repay the loan.
2. Income Verification
Lenders need to confirm that the individual has a stable and consistent income. They usually ask for the following documents.
W-2 Forms
W-2 forms are to be provided for each borrower from the last one or two years. If the individual does not have them, they can ask for copies from their employer or IRS.
Pay Stubs
Pay stubs from the last 30 days need to be submitted. This should be signed by the employer. Also, documentation for any additional income such as overtime or commission should be added.
Income Tax Returns
Lenders will review the individual’s tax returns from the last two or three years. Applicants may need to provide them alongside IRS Form 4506-C. This allows the lender to obtain the tax transcripts.
Alimony or Child Support
If an individual is receiving alimony or child support, they should provide these documents. This is to show that they will be receiving them for at least the next three years. A court order will suffice for this purpose.
Self-employed or Freelancer
For self-employed or freelancers, proof of at least two years of steady self-employment through contracts or client letters is needed. Business licenses or proof of insurance if an applicant owns a business is also required. Along with this, at least two years of federal tax returns, both personal and business need to be shown. Finally, a cash flow analysis and a profit-and-loss statement signed by a CPA.
3. Assets and Debts
After this, lenders will review the assets and debts to calculate an applicant’s debt-to-income ratio. This ratio helps them understand the applicant’s financial health after accounting for their mortgage payments. The applicant should include auto loans, student loans, credit card debts, and existing mortgages in the list of all monthly debt payments to be shown.
Along with this, documentation of bank statements should be provided. Two to three months of bank statements showing that the individual has enough savings for the down payment and other closing costs can be shown. Along with this, any retirement and investment accounts should also be included in the documentation. If the individual is using these funds, they should provide statements for the last two to three months for accounts such as 401(k) or IRAs.
4. Credit Verification
An applicant’s credit history also plays a crucial role in the mortgage application process. While the credit card reports need not be submitted, lenders may check the credit card history with permission. They will evaluate the credit score to determine the applicant’s mortgage eligibility and interest rate. A higher score generally implies a better interest rate.
If there are any negative marks on the credit report such as late payments or collections, a letter should be submitted explaining the reasons.
5. Additional Documents
Along with this, there may be other documents that should be submitted. These include a purchase agreement. This is a signed copy of the purchase agreement outlining the details of the home purchased. Secondly, a rental history with proof of rental payments for the last 12 months is to be provided. This could include contact information from previous landlords.
Moreover, any document with divorce or alimony details can be added to the documentation. In case of any bankruptcy or foreclosure in an applicant’s history, they can ask the lender how long it may take to apply for the mortgage. The applicant may need to provide proof that debts from any bankruptcy have been cleared. Furthermore, if the applicant is a non-citizen, they may need to verify their permanent residency status. A copy of the green card or other related documentation is to be submitted.
