Joe Kustra is a Home Loan Expert with Quicken Loans, America’s #1 Online Mortgage Lender. He has more than six years of experience in the mortgage industry and enjoys helping and educating people about how to get in the right home loan for their personal financial situation and goals.
When beginning the home loan process in today’s lending environment, it’s important to be well prepared. The days of no documentation home loans and seven-day turnaround times are long gone. To help make the process go more smoothly and set the right expectations up front, I’ll go over some of the items you should have ready when you start the mortgage process:
Before you contact your lender, it’s a good idea to have checked your credit report within the previous 60 days. It doesn’t have to cost you a thing either – You can get a free credit report and free credit score at Quizzle.com. Once you get your report, go over it in its entirety and look for any inaccuracies. If you see something that’s not right, immediately start the dispute process with the credit bureaus so you have time to get them corrected before you start the home loan process.
Next, look for delinquencies, aka late payments. If there are any accounts that have gone into collection, there’s a good chance that the lender is going to require them to be paid off prior to or at closing. And if you’ve had any late payments in the past 25 months, you may have to write a letter of explanation detailing what happened. By pulling your credit report before you contact a lender, you have a head start on these items.
Most mortgage lenders will want to see at least one or two paystubs that are within 30 days of your application date and all W-2s from the previous two years. If you’re self-employed or work on commission, you’ll need to supply two years of tax returns as well.
Do you have you any unpaid time-off or do you have any gaps in employment in the past 12 months? If so, the underwriter will most likely want a letter of explanation stating what happened. Has your base salary or hourly rate of pay increased or decreased over the past 12 months? Here’s another occasion where the underwriter will likely want a letter of explanation.
Most lenders will want to see a 60-day transaction history on any account that is being used for funds due at closing and/or funds in reserve. And when reviewing your bank statements, underwriters will look for any unusual deposits.
Transactions where you’ll likely need documentation? If you transfer money from one account to another, the underwriter will need to see documentation for both the withdrawal and the deposit. If you cash-out stock options or cash-out a CD, the underwriter will want to see documentation showing the amount in the account before the withdrawal and documentation after the sale or withdrawal.
If you have sold any personal assets in the last 60 days, make sure you can document a bill of receipt, ownership of the asset, value of the asset and the receipt of the proceeds from the sale. Do not deposit any cash on hand into account during the 60 days prior to applying – It cannot be documented. And if you’re using a 401(k) or retirement funds for monies due at closing or for reserves, you will need to show a most recent quarterly account statement and the terms of withdrawal, which can usually be found on your company intranet site.
If you’re refinancing your current home, make sure that all remodeling or construction projects are completed. And it never hurts to cleanup around the house before the appraiser gets there.
This should cover most of the documentation you’ll need during the home loan process. But there’s always a chance you may be asked to send in additional documentation. If you’re asked for something additional, try not to get upset! Understand that it’s part of the process and it’s in your best interest to get your lender what it needs. Banks and lenders are not asking for this stuff to give you a hard time – We’re on your side and want to get your loan closed just as quickly and efficiently as you do!
For more tips and advice about your home, money and credit, check out:
- 10 Money Resolutions for the New Year
- How to Pick the Right Mortgage Banker
- How to Mix Money When Moving in Together
- Useful Freebies You Can Find Online
- How to Save Money and Energy this Winter