Most buyers need mortgage financing to purchase a home. It s best for everyone if buyers are pre-approved for their financing before they begin their housing search. Most Realtors will insist on a pre-approval before showing houses and before they will accept an offer. Offers from pre- approved buyers receive more serious consideration from the seller. Homebuyers benefit by shopping in the right price range.
Mortgage lending is a highly regulated industry. Third parties are used, to as sure the accuracy of the figures and to reduce the possibility of fraud by verifying all customer information contained on the loan application.
There are many residential mortgage loan products available in the industry today. To determine which is the right loan program for you, the lender will need to verify cash resources available for a down payment, closing costs and other prepaid expenses at the time of closing. Cash reserves after closing also play an important part in the lender s decision.
Buyers will be asked to provide 1) checking and savings account statements for the most recent two months; 2) stock brokerage or mutual fund statements ; 3) other sources of personal investments such as, IRA s , 401k or other retirement account balances. Gift funds from relatives and not-for-profit associations are acceptable for some loans, provided they are properly documented. The lender may have to confirm or update documentation with a deposit verification directly from the bank or broker.
The buyer will be asked to document any recent large deposits to make sure funds have come from an acceptable source. In order to determine the buyer s ability to repay the loan, the lender will consider their sources of income.
The lender is concerned about the stability of income and the likelihood it will continue within the percentage guidelines for a house payment and other long- term debts. Most buyers who receive a wage or salary can document their income by providing paycheck stubs for the most recent month and W - 2 s for the past two years. In some cases, the lender may verify the employment by a phone call to the personnel department and in other situations, a written verification may be required by the lender. If income is received from other sources (for example; rental housing income, self-employed salary or commissions) the borrower will most likely be asked to provide complete federal tax returns for the most recent two years or other appropriate supporting documentation.
Finally, the buyer will be asked to supply a list of any outstanding loan obligations, such as; car loans, student loans, credit cards, and department store charges. The lender will verify the account balance, monthly payment and the borrowers payment history by obtaining a credit report, usually from all three national credit repositories. The credit history is a strong indication of the buyer s willingness and ability to make payments on a timely basis. Additional documentation may be required from the buyer, if past bankruptcies are reported, or if any corrections are needed for the report.
Most lenders will receive credit reports when the application is processed by one of the nationally recognized automated underwriting systems.
Inaccurate information on a credit report can adversely affect a credit decision and can take up to thirty days to correct (under the provisions of the Fair Credit Reporting Act). This point re-emphasizes the importance of beginning the loan pre-approval process early, before making an offer to buy or list a current home for sale.
Once the buyer has found a home, the lender will need a copy of the purchase contract to order an appraisal to confirm the value, condition and marketability of the home. By overcoming any financial obstacles (saving more cash, paying of f debts, clearing up credit) in advance, buyers will assure themselves the best financing terms available and a speedy closing.