How can you get a home loan? If you’re a first-time home buyer – or are simply considering becoming one – you likely find yourself wondering this (among other things).
Don’t let the process intimidate you if you’re ready to buy a home. We’ve compiled some frequently asked questions about conventional loans, as well as other kinds of mortgages available for different situations.
Let us help take away some of the mystery, empowering you to start making decisions for your future!
What Documents Are Required To Get A Home Loan?
The documents you’ll need to apply for a mortgage depend on your particular circumstances. Here are some of the various items you may need to provide to a lender as part of the mortgage application process.
Tax returns and pay stubs
Mortgage lenders typically require a couple of years’ worth of tax returns to get a holistic picture of your financial situation. They can compare them to your pay stubs to make sure it’s consistent, and to verify that your income is stable over time.
Your prospective lender may ask you to fill out Form 4506-T, which permits them to access your returns.
Other proof of income
Banks and credit unions try to minimize their risk when they make loans and as they determine the corresponding interest rate they will charge. Therefore, they try to get as accurate a view of your finances as possible.
In addition to your tax returns and pay stubs, they may also ask to see the following:
- Proof of other sources of income (i.e. child support)
- 1099 IRS forms
- Direct deposits and bank statements
- Proof of insurance
- Investment documents
- Gift letters (If friends or family have gifted you money to put towards a house payment, a gift letter provides proof that the money isn’t a loan you’re expected to repay.)
This documentation shows lenders that you’re responsible and capable of making monthly payments, even if an unforeseen emergency crops up.
When it comes to applying for a mortgage, your credit history is pretty important. Your prospective lender will most likely ask your permission to access your credit reports from one or all of the three major consumer credit bureaus: Equifax, TransUnion, and Experian.
If your credit report contains anything that might concern a lender, such as a foreclosure or short sale, be prepared to provide a written statement to explain what happened. While this sounds ominous, it can actually be helpful to help show that this was an aberration.
Identification and rental history
Additional proof you’ll need to provide that you will be able to make mortgage payments includes your ID (so lenders know you are who you say you are) and your rental history.
Your rental history can be either documentation from your landlord of your past year’s rent payments or canceled (paid) rent checks from the same time period.
How Much Can You Pay For?
When purchasing real estate, your down payment and closing costs are an important part of the home-buying process. Before you get started, sit down and figure out based on your different loan options and loan amounts what you can afford.
First, take a look at your budget and see how monthly mortgage payments fit.
Next, if you can manage a large down payment, this tends to improve lenders’ confidence in you.
Additionally, note that they tend to prefer a debt-to-income ratio (how much debt you’re carrying around in credit cards, etc., versus how much income you consistently bring in) of under 43% (but this will vary by lender).
Other home-buying costs
Some further cost considerations:
- Homeowner insurance payments
- Property taxes
- Closing costs
Closing costs can comprise a variety of things: appraisal and various inspections of your home, loan origination and application fees, attorney fees, escrow and courier fees, as well as the cost of pulling your credit report. If your neighborhood has a Homeowners’ Association (HOAs), you will likely pay member dues.
Know What You Qualify For
There are a variety of loans available for people in different situations. Various federal, state, and private entities offer home-buying assistance, loans, and grants.
Some common examples of government assistance include USDA and VA loans, each with its own eligibility requirements.
If you’re going through a private lender, you can choose to repay your mortgage over either 15 and 30-year terms at fixed interest rates, or an adjustable rate.
Ready To Get A Home Loan?
1st Nor Cal CU can help you determine when and how to begin your home-buying journey.
As a member-owned, community-based credit union, we are standing by to answer your questions so you can get the best rate possible for your financial situation and circumstances.