Handy Checklist for Getting Your Next Mortgage, Pain-free
Mortgages always tend to get messy from rate quote to closing. This messiness is often the result of two very common pitfalls:
- Everyone’s personal financial situation is unique. Most have some little nuance that makes loan underwriters want more information (ugh! more documents from you).
- Most lenders don’t slow down and prepare their clients. Helping them understand the next steps and giving them time to get organized.
This simple checklist should help with the second pitfall.
It will also uncover common ‘surprises’ that trigger additional requests from underwriting. You might hear us in the industry call them ‘conditions.’
Follow this checklist to make your mortgage process a little smoother.
1. Check your credit score and report. Most of the time your report is as you suspected. Generally, you know what end of the spectrum you are on.
Good credit: You pay your bills on time, you use a smaller portion of your available credit, and you’ve never declared bankruptcy or been foreclosed on.
Not so good credit: You often are late on bills, your credit cards are all maxed, and you’ve had a bankruptcy or foreclosure you are still recovering from.
But, sometimes there are surprises, often not of your making. These can be the result of mistakes or even identity theft. You want to identify, dispute, and immediately resolve off your report.
These surprises are why I advise checking your credit report at least every six months. Check yours for free right now.
2. Gather your income documents. As you can imagine lenders want to make sure you have a steady source of income to repay the loan they give you. A reasonable request, but if you’re not familiar with the documents that prove your income, it can be frustrating.
It starts with your tax returns. In most cases, your lender is going to ask for your last two years of tax returns regardless of your source of income. You might as well find those.
Then based on your income source(s), you will fall into one or more of these categories and these additional documentation requirements:
- If employed by a company: W-2s and pay stubs
- If self-employed: Year-to-date profit and loss statements
- If retired: The current year award letter from Social Security and pension(s) as well as bank statements showing those regular deposits
3. Have a good handle on your monthly debt obligations. You need to know the total monthly payments you make to credit card(s) and car loan(s). Your current housing expense (i.e., rent payments or current mortgage payments) are important too. But, these come into play in a different qualifying calculation that typically isn’t too problematic.
4. Gather your last three months of bank statements. Your checking and savings account statements are necessary documents to inform an assessment of your ability to repay the loan.
5. Show the source of your down payment and closing costs. In most cases, your bank statements are enough. But, if any part of your these funds will come from a gift, a gift letter is necessary. This letter, from the gift giver, must state that the funds do not need to be repaid.
So, why do we need these documents?
- Your credit report and score are significant to qualify and determine your interest rate for a mortgage. Data from this report also inform the lender of debts, other mortgages, and any past bankruptcies or foreclosures.
- Income documents and debt obligations from your credit report help lenders calculate your debt-to-income ratio (total monthly debt payments/total monthly gross income). This ratio typically needs to be less than 45% to qualify.
- Checking and savings account statements, and sometimes investment account statements and gift letters assist lenders in determining if you have enough assets for required reserves, closing costs, and down payment.
Gather these documents, do the quick checks included here, and you’ll have a lot fewer surprises in your mortgage process.