The Borrowing Process
Pre-Qualification
Before you apply for a mortgage, you need to know your:
- Current monthly income
- Current monthly expenditures
- Desired monthly mortgage payment
- Anticipated sale price or home value
- Anticipated down payment amount
Obtaining a Loan
Whether you are seeking pre-approval or have agreed on a purchase price for your new home, you need to "prove" your eligibility for a mortgage. Mortgage lenders typically consider the following factors in determining your borrowing eligibility:
Income
You typically need to prove both your monthly income and income-earning history.
Expenditures
Both your current and projected monthly obligations are compared to your monthly income. As a general rule, your monthly housing expenses should not exceed 28% of your gross (pre-tax) monthly income. Overall, your total monthly expenses (e.g. housing, auto, student loans, credit card, etc.) should not exceed 36% of your gross monthly income. It is important to note that these are general guidelines and can vary depending on the loan program you select.
Credit History
A demonstrated track record of handling financial obligations in a timely manner is a characteristic lenders actively seek. Lenders use your credit report to assess and qualify this track record. By clearly understanding your financial history, lenders can judge the likelihood that you will also handle your mortgage obligation responsibly.
Down Payment Size
Although some loan programs only require a small or no down payment, a larger down payment can be considered favorable. Often, the size of your down payment can be increased through a gift from an immediate family member or by borrowing against another asset (such as a 401k plan).
The following income and employment information is generally required as part of the loan process:
For the employed:
Current pay stub showing year-to-date income
Current W-2 Form
For the self-employed:
Current, signed business and personal income tax returns covering a two-year period
Current balance sheet
Year-to-date profit and loss statement
For retired homebuyers:
Social Security Award Letter
Either a 1099 Form or bank statement spanning a two-month time period (all pages)
Copy of your pension check and all supporting documentation
Bank account information—Bank account statements spanning the most recent two-month time period (all pages).
Investment information—Including account numbers, current values, and statements spanning two months.
Credit card information—Including credit card company names, account numbers, monthly payment amounts, and outstanding balances.
Other loans (auto, student, etc.) information—Including lending company names, account numbers, monthly payment amounts, and number of remaining payments.
Rental information (if applicable)—Landlord's name, address, and telephone number.
Other information:
Name of settlement agent/attorney, firm's name and telephone number;
Divorce decrees and separation/alimony agreements (if applicable);
List of other real estate owned, including value, mortgage balance, monthly payment.