There’s A Right Way, And A Wrong Way
In today’s competitive housing market, it’s critical that you understand how to apply for a home loan without errors. Some home loan mistakes cannot be undone, because mortgage underwriters cannot “unsee” what you put down on your application, even if you fix your slip-up.
For instance, if your bank documents show bounced checks, you’ll want to clean that up for a couple of months so you can submit pristine statements.
How To Apply For A Home Loan
The Uniform Residential Loan Application, also known as the Fannie Mae Form 1003, is what lenders use when determining a homeowner’s ability to get approved for a mortgage loan.
If you’ve never seen this form before, it can seem a bit intimidating at first. No need to worry, however. Your lender can help guide you through this form.
The way you apply for a mortgage may vary depending on the loan officer, and the lending institution.
Some lenders will take down all your information in person, or over the phone. Alternatively, thanks largely to today’s technology, many lenders will send you a link that will take you to a website containing their online application.
The information from your loan application can then be imported by your lender, populating the appropriate fields that are necessary to complete your loan application.
Regardless of how you do it, the first step to buying or refinancing a home is to fill out a mortgage application.
The information you provide on the mortgage application, will give you an idea of the paperwork that will ultimately be needed by your lender. Be prepared to provide the necessary documentation to support the information you’ve given on the loan application.
Preparing For Your Loan Application
When determining your qualifications for a mortgage, lenders look at your ability to repay the home loan.
They focus on three major factors.
Your credit scores and your pay history are vital components. There are three primary credit bureaus, and all produce different scores. Because credit is such a major factor when obtaining a mortgage, it is a great idea to check your credit prior to applying.
Before applying, make sure your credit scores meet or exceed minimums set by the lender. Many establish higher levels than those set by the programs themselves. For instance, FHA requires minimum FICOs of just 580 for 96.5 percent financing, but many lenders set their minimums at 620 or higher.
All three major bureaus provide you with a free copy of your credit report. Go to the government’s site, www.annualcreditreport.com for your free reports. You can purchase your FICO scores for a small fee as well.
If you find errors, resolve them before applying for a mortgage and shopping for a home. If you’re already have a loan in process, your lender may be able to order a “rapid re-score” to fix your credit in a few days. You provide proof of the error and the re-scorer fixes your history fast.
While some mortgages offer 100 percent financing, most loan programs require at least a small down payment. Whether it’s three percent or twenty percent, lenders look over your asset statements very carefully.
They want to ensure your down payment funds are from acceptable sources and can be documented properly. If possible, keep your down payment funds in a separate savings account. This makes the process easier when you’re trying to get your loan approved.
You’ll provide statements covering two or three months. Avoid having anything sketchy on your statements, like bounced checks. If there is an unusually high deposit on your statement, be prepared to show where it came from.
If someone gifts you the money, for instance, you’ll need a letter explaining that it’s a gift, not a loan, a copy of the original check, and possible a bank statement from the giver showing that the money belonged to him or her.
Alternatively, if the money is in your account for a couple of months before you apply, and the deposit does not show up on you recent statements, you probably won’t have to explain it.
Employment & Income
Lenders verify what you do for a living, how long you’ve done it, and how much you earn.
They usually require your paycheck stubs and tax documents. To make things easier, have 30 days of pay stubs ready, along with your most recent two years of W-2s and tax returns.
If you’re self-employed, be prepared to provide additional documentation, such as your business license, profit and loss statements and balance sheets.
Government Loans & CAIVRS
While government-backed loans like the FHA, VA and USDA programs make qualifying easier in general, there is one iron-clad guideline that you might trip over.
CAIVRS is the Credit Alert Interactive Voice Response System. The government created this database to track people who don’t pay their federal debts or obligations. This includes people with foreclosures on government-backed mortgages. Others may have a federal lien, judgment or a federal loan that is currently in default or foreclosure — like a tax lien.
If you are in CAIVRS by mistake, it’s best to clear that up before applying for a loan. If you have skipped out on a federal obligation, you’ll have to get on a payment plan before you can get off the list.
What Are Today’s Mortgage Rates?
Understanding how to prepare for, and apply for a home loan, can give you a “leg up” when you are ready to get a home loan.
If you have good credit, income and assets, applying for a mortgage loan should be a relatively easy process. And you should be able to qualify for a great interest rate and competitive closing costs.
Don’t be afraid to shop around, though. Small differences can add up to substantial savings over the life of the loan.