Applying for a Mortgage: Stay Ahead of the Game
Applying for a mortgage is often portrayed as a Byzantine process that hits you with round after round of heavy-handed demands just as you’re feeling the most stressed about snagging the house of your dreams. Looking for a way to regain a sense of control? Take the sting out of the process by lining up the documentation your mortgage lender is likely to ask for before you even begin.
Prequalification vs. preapproval
The entire process begins with prequalification. Prequalification is an early nod from your lender that tells you the price range it believes you can probably take on. Your lender will use your income, debt, and credit history to generate a ballpark figure of the maximum dollar value of a home you’re likely to be approved to buy. It’s not an official stamp of approval or guarantee that you’ll be approved for a mortgage; instead, prequalification is designed to show you where to begin house shopping. It’s a quick, easy process you can frequently handle by phone or online.
Preapproval, on the other hand, nudges you closer to a real financial commitment. For preapproval, your lender will require you to submit income and employment details, W-2 forms and bank statements, and will pull a full credit report. Even though preapproval goes deeper into your finances, it still provides no guarantee that you’ll be approved for a mortgage loan. It’s designed to show real estate agents and sellers that you’re ready to come to the negotiating table as a serious buyer.
Before you submit your mortgage application
When you find a house you want to buy, it’s time to open negotiations and make your formal application for a mortgage. Applying for a mortgage is all about paperwork, and going in unprepared could leave you feeling savaged if your lender has to keep asking for additional documentation. Don’t put yourself in the position for a long game of catch-up. Pull together everything your lender could ask for before you submit your application.
Even as you prepare your documentation, beware of jumping the gun and doing too much too soon. Lenders will want the most recent versions of statements, so don’t bother pulling them until you’re ready. But do you know where to find, download, and print them quickly? This is a great time to clean out and organize your files. Get rid of anything you don’t need, and set up a filing system that makes it easy to pull together exactly what you need when the times comes.
Here’s the master list of what your mortgage lender may require:
- W-2 forms and income tax returns for up to two to three years
- Pay stubs (probably a few months’ worth) or proof of self-employment income (often up to a year or more)
- Current statements for credit cards and loans
- Written explanations for credit report deficiencies
- Up to three months’ worth of recent statements for financial assets (checking and savings accounts, CDs, etc.)
- If you currently own your home, a current mortgage balance statement
- If you currently rent your home, canceled checks and bank statements proving you consistently pay your rent on time
- A letter from anyone who’s given you a financial gift toward your home purchase stating that the money is in fact a gift and not a loan
- Photo ID for each person listed on the loan application
- Address history listing all the addresses you’ve lived at for the past two years
- Divorce decrees to prove nobody else has a claim to your property
- New, complete mortgage application
More paperwork for current homeowners
If you currently own your home, you may also be asked for:
- Property deed with recording information, or copy of Certificate of Title
- Title insurance policy
- Substantiation of any rental income
- Real estate tax bill showing your property’s current assessed value
- Title V septic system report for homes with septic systems
Your path to a new home
PenFed takes the confusion out of the mortgage application process with the PenFed Home Ownership Center. If you’re a first-time home buyer, follow PenFed’s step-by-step first-time homeowner’s guide with tools, information, and great loan rates. Seasoned home buyers can jump right into comparing mortgage loan options.
Buying a home doesn’t have to be a hassle. Wherever you are on your path to buying a new home, stay ahead of the game so you won’t feel pushed and pulled over details once you’re ready to make an offer.