What You’ll Need to Qualify for a Home Mortgage

Prior to 2008, it was easy for buyers to qualify for a home mortgage due to loosely based regulations that allowed lenders to hand out loans without thoroughly vetting the borrowers. However, post-The Great Recession, there are many regulations implemented and documentation that needs to be provided to ensure that anyone who borrows a loan has the financial ability to pay it off.

What Documents Do You Need If You Are Applying for A Home Loan?

With some additional information provided by Rex Homes, here is a list of necessary information and documents you need to qualify for a home mortgage.

Photo Identification: A government-issued photo ID is a must as it ensures you are who you state you are.

Income Proof: Lenders look at your DTI or debt-to-income ratio to compare your debt payment to your monthly gross income. They want to ensure that you have the finances to pay your bills and loans. Many lenders require that your housing costs should be 28% or lesser than your pre-tax income to obtain a mortgage. You can show your proof of income by providing your W2 forms and paystubs.

Tax Returns: Sometimes paystubs may not provide a complete picture of your financial situation. In such cases, lenders require you to provide permission to access your IRS tax returns from the past 1-2 years.

Proof of Assets: Lenders also consider your assets like investments, checking and savings account when evaluating your risk profile. Thus, along with a solid income, it is important to have funds in your bank to handle emergencies.

Credit Score and Credit Report: Your credit score and credit report can affect your ability to obtain a loan. The credit report provides a detailed breakdown of your borrowing history and reflects information about your credit accounts, credit inquiries, collections, and public records. Your credit score is compiled through the information in your credit report and a good credit score can help you receive a good mortgage rate.

Renters History: First-time homeowners may be required to provide a renter’s history that provides information about your housing payments.

Gifts Documentation: If your friends or family have provided you with cash to purchase your new home and there is a sudden influx of cash in your account, it may look like a loan to lenders and could affect your chances for loan approval. If you are being gifted money that will be used toward your house payment, it is best to include a gift letter from the donor that indicates that the gift has no repayment expectations.

Down Payment Requirements

Apart from the documents mentioned above, most of the loans have a down payment requirement ranging from 3.5% to 20% of the house price. A low credit score may require you to put down a large sum of down payment.

If you are a new buyer or planning to buy a second home, it is suggested to get in touch with a mortgage professional who offers varied loan options at competitive rates. In addition, a mortgage expert can help evaluate your loan documents ahead of time, help you understand how much you can borrow, answer any questions that you may have, and thereby prepare you to find your dream home.