A mortgage application is a complicated financial transaction with multiple requirements. Unless you have a background in finance or have taken one out before, the process can seem confusing. This process can be different for each bank and for each state. Real estate markets differ in each state; for example, mortgage applications can be faster in Utah than it is in Colorado.
A reliable and trustworthy mortgage lending company will guide you through the process. But as a potential applicant, you need to educate yourself about it beforehand. One way to do so is to have the right answers to the questions a mortgage broker may ask you.
Be prepared for the following questions and bring the relevant documents.
Where do you work? How long have you been working there?
Since a mortgage is a type of loan, proof that you’ll be able to pay it back is one of the first things a broker is going to ask.
A steady employment history will be better for your application. Being in the same line of work and with the same employer for at least two years is optimal. If you’re self-employed or a contractual worker, this may complicate the process.
How much is your income? Is your salary steady or irregular?
Your income affects your mortgage’s interest rate. Applicants who have more income and fewer debts will have lower interest rates.
Brokers will expect IRS tax statements and ask for your tax return transcript. If you collect paychecks, you’ll be required to bring copies of your pay stubs and W-2s.
What kind of debt do you have?
Another factor that will affect your interest rate is your debt. Brokers are more concerned with recurring debt, such as alimony, student and auto loans, and credit cards.
Bring copies of your monthly payments. A mortgage broker is more likely to approve your application if your debt accounts for less than 36 percent of your pretax income.
How much do you have in savings? Do you have any other assets?
Brokers prefer that you have at least two months worth of mortgage payments in your bank account after you’ve made your initial payments.
Other assets that they will ask about include your 401 (k), any stocks and bonds that you may have, and whether or not you have any other investment accounts. Prepare copies of brokerage statements.
How much is your down payment? Where is the money for your down payment coming from?
for the source of your down payment matters. If all of it comes from your savings, it might affect your application, as noted in the section above. Copies of bank and brokerage statements are essential.
If the money for your down payment was a gift or grant, bring letters from the individual or organization responsible. Brokers are wary of money that has no providence.
What is the mortgage for?
This boils down to whether or not you’re buying a new home or refinancing a property you already own. Refinancing has its own hurdles and questions, but asking for a cash-out refinance will complicate matters.
Where is the property located? Will it be your primary residence?
Location affects your property value, which in turn affects your mortgage. Brokers also favor it if the property you are mortgaging will be your home instead of a vacation house or a condominium you’re going to rent out. For this purpose, a single-family detached home is preferred.
Purchasing your first home is a dream. A good mortgage firm will help you through the process and explain what you need to know to make it happen. But a little knowledge can go a long way to make your dream easier to achieve.