You’ve been saving and searching for that dream-come-true abode to plant your roots and as luck would have it, you’ve found a winner. Congratulations! Because of the huge recession nearly a decade ago in the United States, lots of people are looking to buy homes after years of renting. As a result, the real estate market is competitive in many parts of the country, requiring buyers to put in aggressive offers and, in some places, compete with deep-pocketed investors paying cash. As a good practice, we always recommend getting pre-approved for a mortgage loan before you even begin the home-shopping experience. These applications can be done on a secure website provided by the lender. This will not only allow us to hone in on an accurate sales price range matching your desired monthly budget, it is required to submit an offer. A conditional approval from a lender will make your offer almost like-cash and allow your offer to stand out above the rest of the offers!
In order to qualify for the loan needed to purchase your new home, avoid the following mistakes:
- Don’t transfer a large deposit of money into or out of your bank account. If this scenario is unavoidable, your lender will need to verify it, and this process can be lengthy if you can’t produce documentation like a pay stub, invoice, or letter from a gift-giver.
- Stashing cash away at home that you intend on using to purchase your home is a no-no and should be kept in your verified bank account.
- When you are applying for a home loan, it is best practice to avoid opening or closing a credit card account. Any time you open or close a credit card, your credit score is affected and may hinder you from qualifying.
- If at all possible, do not change jobs after you apply. If you have to change jobs, it’s recommended that you wait 30 days after starting your new job to apply for your home loan so that you can establish your income. This also includes salary/hourly status as well. Switching from hourly to salary or visa-versa will affect your loan application process.
- It’s best not to complete any major purchases while applying for your loan– especially on credit cards. Wait to buy big-ticket items like furniture, appliances or a new car until after closing.
- Don’t overdraw your checking account. This may seem obvious, but keep a watchful eye over your account balance to avoid this costly mistake.
When you are in the beginning stages of a loan process, the lender will ask for a list of documents in order to get approved for a mortgage loan. In most cases, you will need to provide the following to a lender:
Proof of income
A lender wants to know that you’ll be able to repay the loan. At minimum you’ll need to provide:
- The previous year’s W-2 form.
- Your most recent pay stub.
- Your tax returns from the past year
- Proof of consistent employment
Depending on your income history and the size of the loan, your lender may require additional paperwork.
Earnings outside of a regular job
If you make money from other sources, you’ll need to provide detailed information about that, too. For example, someone who receives child support or alimony will likely have to show the lender a copy of the divorce decree. Someone who earns income from rental properties may be asked for a copy of the lease agreement(s).
You’ll have to put together a complete list of all debts you have, including credit cards, student loans, car loans, alimony and child support payments, along with a breakdown of balances and the minimum monthly payments.
No matter how much you’re earning, your debts can seriously impact your debt-to-income ratio, which is a crucial component of your credit score. If you’re spending beyond your means, or you have a lot of high-interest debt, you’re less likely to qualify for the lowest rates on a mortgage.
An inventory of assets including bank statements, investment records, retirement accounts, real estate, and auto titles, and any other investments also make up a large part of your financial picture.
If you had a bankruptcy within the past several years, you may be asked for your bankruptcy discharge papers. In some cases, a bankruptcy can appear on your credit report for up to 10 years. Even if you’ve been on sound financial footing since then, a lender will want to see that you’ve settled with your creditors.
We would love to help you on your home buying journey in Atlanta GA – starting with getting pre-approved with one of our amazing lender partners. If you are interested in taking the next step, we encourage you to contact us today! 678.671.0202