When you are applying for a loan, be prepared for a lot of qualifying questions and documents to back it up. It may seem like a lot, but you have to understand that the lender has to make sure you can repay such a big loan. Especially with the new CFPB (Consumer Financial Protection Bureau) regulations. If the lender doesn't make sure you meet all of the qualifications, they could be on the hook for paying extremely high fines. When they start asking for more and more info, think about it as if you were in their shoes.
Employment & Income
*Were do you work and how much do you make?
You will need to provide tax statements, bank statements, and paycheck stubs.
*How long have you been on your job?
You must be on the same job or in the same field of work for at least 2yrs.
(Tip: If you plan on buying a house PLEASE DO NOT CHANGE JOBS.)
*Do you get child support?
*Do you have a second job?
*Any disability checks or any other type of monthly income?
You will need to provide documents for every form of income.
Note: If you are self employed, it may be a little bit harder to approve. They will most likely ask you for more documentation.
Debt
*What types of monthly debts do you have?
*How much is paid monthly for you student loans, auto loans, and credit cards?
You may be asked to provide copies of your bills.
Note: It is very favorable if your monthly debt payments are at 36% or less of your pre tax income, and you haven't made any recent big purchases like buying a car.
Do not max out your credit cards. Make sure that you use no more than 30% of each credit card.
Savings & Assets
*How much money do you have in the bank?
You will need to provide bank statements.
*If applicable, how much do you have in stocks, bonds, mutual funds, investments, and other assets? You will need show documentation for each one that applies.
Note: It looks very favorable if you can show that you will have some money in the bank after closing. I would say at least 2 months of mortgage.
Down Payment
*How much is the house you are trying to purchase?
*How much is the down payment?
*Where will the down payment come from?
Is the down payment coming from savings, a gift from family or friends, grant, or non profit?
You will need to provide documents or letters from the banks, gift ,or grant givers.
Note: It really looks good if the down payment comes from your savings or equity from the sell of your previous home. It also looks good if you can make a down payment of 5%-20%. Most people put down 3.5% with an FHA loan. It is a little bit more difficult (but not impossible) if the down payment is a gift form a friend or family member. You will not be approved if you cannot show where the down payment is coming from.
Purpose Of The Loan
*Are you buying a house or refinancing a current home?
*If you are refinancing , are you looking to get cash out?
Note: If refinancing it is easier to approve without requesting cash.
Type Of Property And Use
*Is it a house, duplex, condo, or townhouse?
*Are you buying the property as an investment?
*Do you plan on living there year round?
*Will it be a vacation property?
Note: It is easier to approve for an owner occupant home over an investment property. Also, the interest rate may be a little bit higher on an investment property.
The moral to the story is to get ready to answer these questions, and have the documentation needed when you apply for a loan. You do not want to hold up the process. They may not ask for some documents upfront, but they will during the transaction. The more you have available when asked, the easier the transaction will be. It can become frustrating when you have to constantly look for documents during the home buying process. And most of all, you don't want to waste any time during your due diligence period under contract. That is the period to have your earnest money returned back to you if for some reason you don't approve. If you waste days and you don't approve, you will loose your earnest money. If you know what is needed in advance, and have it available, you will have a smooth and easy transaction. The less stress the better! Bottom line....BE PREPARED!
