Dos and don'ts when applying for a home loan
The process of applying for a home loan reveals a great deal of your personal financial information that you might otherwise wish to keep private. Most lenders use a standard form with fields for identifying information, the property description, income, assets and debts from all applicants.
Your answers allow the lender to properly assess your personal finances and credit history to determine your eligibility for financing at the current market interest rate. Providing incomplete, incorrect, vague or misleading answers can only delay or interfere with the application process as you pursue financing. Understand that any answers you provide must be backed by supporting documents -- for example, your pay stub and W-2 should corroborate whatever income you claim on your application within reason. If it doesn't, mortgage processors and underwriters will adjust the amount.
Lenders will pull a credit report to not only to check your credit history but also to confirm the amounts you owe and the monthly payments. If a debt isn't listed on your credit report, you still need to include it on your application.
Your total income drives the amount you qualify to borrow. Make sure you do not omit any of the following additional sources of income, providing you can back them up with tax returns, bank statements or other financial statements documents.
- Alimony and child support. Many applicants mistakenly omit or forget to include alimony and/or child support they expect to receive. You'll have to prove this with copies of the checks and / or your deposit forms and / or bank statements.
- Commissions, bonuses, overtime, self-employment or rental property income. Additional income can help your application, but only if you can prove it. Generally, you must be able to document income earned consistently for two years from any of these sources.
- Spouse's income. If you plan to combine your and your spouse's income on the application, understand that the lender must also take into account your spouse's credit history, which can work in your favor or against it.
- Co-signer. Asking someone with good credit history to co-sign with you can strengthen your application. Know, however, that once the mortgage is closed, your co-signer is as responsible as you are for seeing that the mortgage does not go into default. If you cannot make your mortgage payments, the co-signer legally must make them for you.
Mortgage applicants often make the most mistakes when responding to the debt portion of the questionnaire. Avoid these common errors.
- Alimony and child support. If the court orders you to pay alimony or child support, you must list it as a debt when applying for a mortgage.
- Monthly debt payments. For purposes of the loan application, include only the monthly minimum payments required by your creditors, even if you regularly pay more than the minimum.
Other Tips for Mortgage Applications
Before you fill out an application for a government-sponsored, first-time homebuyer program, have your lender explain the requirements. Many have income thresholds and most require you to complete some form of homebuyer education program.
If you plan to use the home you are mortgaging as rental property after the loan closes, you must disclose that to the lender. Rental property does not qualify for the same mortgage rates and terms as a primary residence.
When you have completed your mortgage application and the approval process begins, avoid major changes to your financial circumstances. Do not finance a new car or apply for credit cards; that could derail approval. Keep in mind that your mortgage is not finalized until you close.
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