Preparing for the Mortgage Loan Application Process
Before approaching various mortgage lenders about securing a mortgage loan, it’s best to be prepared. Understanding the lingo of mortgage lenders as well as knowing in advance what mortgage lenders look at to determine whether or not to approve a mortgage loan is the first step in securing a mortgage loan and financing the home of your dreams.
Securing a mortgage loan - pre-qualification vs. pre-approval
Pre-qualification and pre-approval are not the same things. Getting pre-qualified just means that you have provided mortgage lenders with your income level and your debt and credit information, and the mortgage lenders have estimated what kind of mortgage loan you can afford.
Pre-approval, however, puts you much closer to the actual mortgage loan and means that the mortgage lenders have done the leg work of pulling your credit report, checking your debt-to-income ratio, and has done a more in-depth analysis of your situation.
In most cases, you’re much better off getting pre-approved so you don’t have any surprises when mortgage lenders check your credit report - particularly if you haven’t checked the report yourself first.
What do mortgage lenders look at?
Mortgage lenders look at your employment and your credit history as indicators of how likely you are to pay back your mortgage loan. Mortgage lenders want to see stability, which means that they will look closely at any late payments during the last two years of your credit history. They will pay particular attention to any rent or mortgage loan payments that were over 30 days past due. Mortgage lenders also look at late payments for credit cards during the last six months.
Your employment for the last two years is also important. Mortgage lenders look for steady employment with a single employer for the last two years (or at least employment in the same field). Other income - such as income earned from part-time, overtime, bonuses, or self-employment - is also acceptable if it has a two-year history.
Don’t be afraid that just because you don’t have two years with the same employer behind you that you won’t be able to get a mortgage loan; you may just have to talk to more lenders and look at different types of mortgage loans.
Documents needed when applying for a mortgage loan
Below is a typical list of the documents mortgage lenders need from people applying for a mortgage loan:
- Money for the closing costs
- Completed sales contract signed by buyers and sellers
- Social Security numbers of all applicants
- Complete address for the past two years (including complete name and address of landlords for past 24 months)
- Name, address, and all income earned from all employers for past 24 months
- Previous two years' W-2 forms
- Most recent pay stub showing year-to-date earnings
- Name, address, account number, monthly payment and current balance for all loans and charge accounts
- Name, address, account number, and balance of all deposit accounts, such as checking accounts, savings accounts, stocks, bonds, etc.
- Three months most recent statements for deposit accounts, stocks, bonds, etc.
- If you choose to include income from child support and/or alimony, bring copies of court records of cancelled checks showing receipt of payment.
Working with mortgage lenders to secure a mortgage loan can be much easier if you’re prepared. Be sure to check your credit report before pre-qualifying for a mortgage loan, and gather the appropriate documents before selecting a mortgage lender and applying for a mortgage loan.
