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Mortgage application preparation: 7 things you should know

When you’re in the market for a new home, it helps to understand what’s involved in the mortgage application process. We’ve assembled a list of seven things you should know so that getting a home loan goes as smoothly as possible.

Tips for a successful mortgage loan application process

Before applying for a home loan, you can prepare by checking your credit reports, assembling the proper documentation and comparing the different types of mortgages.

  • Your lender will check your credit, and you should too

    After you fill out an application for a mortgage, your lender will check your credit. Your credit score and the financial information on your credit reports can determine the terms of your loan and, ultimately, whether you’re approved. Because errors could lower your credit score, reviewing your credit reports for accuracy is essential. Check your credit reports for red flags that you can potentially correct before buying a home.

    You have the right to dispute incomplete or inaccurate information. Red flags to look for include an incorrect current balance, a payment wrongly reported as late or one missed entirely and the same debt listed more than once. Also, check for fraudulent information, such as an unrecognized debt reported to collections or an account you didn’t open.

  • Get an idea of how much home you can afford

    Your income, debts, down payment amount, interest rate, closing costs and credit score all factor into how much mortgage you can afford. Use the Guild Mortgage affordability calculator to get an estimate of the home purchase price and loan amount that you can afford, along with the down payment amount that would be required.

    Mortgage rates can change daily, and every borrower’s situation is unique. Consult with a local loan officer who will assess your credit score and other factors and provide an estimated interest rate to put into the calculator.

    In addition, consider how much you’ll need to set aside for common homebuying expenses. You’ll need enough funds to cover closing costs, including property taxes and homeowner’s insurance, moving expenses and potentially discount points.

  • Understand there’s no standard down payment amount

    Your minimum down payment amount will vary depending on your home’s appraisal price, loan type and credit history. You may have heard that it’s a requirement to save 20% before buying. However, there’s no standard down payment amount. Your loan officer can help you choose the best home loan and down payment amount for your financial situation, including an affordable loan program with low or no down payment options.

  • Learn more about down payment assistance (DPA) programs

    Down payment assistance programs open the door to affordable homeownership. They offer relief from the costs of purchasing a home for buyers who can afford monthly mortgage payments but don’t have enough cash saved for a down payment. Eligibility is largely based on income, with assistance such as a loan or grant that’s sometimes forgiven after spending a certain amount of time in the home as a primary residence.

  • Research and compare types of mortgages

    Whether you’re a first-time homebuyer, or an existing homeowner looking to upsize or downsize your living situation, there are many different types of home loans for a wide array of borrower situations. For example, there are VA loans for military families, energy-efficient mortgage programs if you’re looking to save and go green and home renovation loans for fixer-uppers, to name just a few.

    Luckily, loan officers have an in-depth knowledge of loan programs and their requirements and can pair you with the one that best fits your life. It’s never too early to reach out to a loan officer to discuss your homeownership goals.

  • Review this mortgage application documents checklist

    Before approval, your lender must determine if you can repay the loan. This process is done by verifying your income, assets, debts, credit, insurance coverage and home value. While the specific documents may vary depending on your loan, you’ll need the following information.

    Note, at Guild Mortgage, we offer the ability to fast track your mortgage application, which automatically pulls some of this information for you after you give consent.

    • ✔ Proof of employment and income

      Income verification is one way to demonstrate your ability to repay a loan. You’ll need to show how much you earn and have steady employment when you refinance. Proof of income may include paycheck stubs, W-2s, 1099s, a proof of income letter from your employer if you recently changed jobs and copies of social security, pension, disability and retirement award letters.

    • ✔ Asset statements

      Because they’re an up-to-date record of your financial transactions, you may need to show recent bank, stock, investment and retirement account statements as part of your mortgage application. Asset statements also show you can cover out-of-pocket homebuying expenses, like closing costs.

    • ✔ Debt obligations

      Your debt-to-income ratio plays a significant role in whether you’ll be approved for a loan because it reflects your ability to manage monthly payments. You’ll need to provide monthly statements for debt obligations such as student and auto loans and credit cards.

    • ✔ Tax returns

      Tax returns are another way of verifying your sources and types of income. If you’re self-employed or receive commission or rental income, be prepared to provide your two most recent personal income tax returns. If you own a business, you may also need to provide your two most recent business tax returns and profit and loss statements.

    • ✔ Letter of explanation

      The financial information on your credit reports shows how you manage your credit and your past loans. If you have issues on your credit reports, such as late payments, collection accounts or previous bankruptcy, you’ll want to include a letter of explanation with your mortgage loan documents and bankruptcy discharge paperwork (if applicable). You may also need to provide a letter explaining a gap in employment or a recent large deposit.

    • ✔ Alimony or child support documents

      When you collect alimony and child support, it may be considered income. And if you’re paying alimony or child support, it may count as debt. If you’re legally separated or divorced, be prepared to supply additional documentation, such as a divorce decree or court order.

  • Get pre-approved

    Pre-approval helps you find a price range for your home search and gives direction on how much you should save for a down payment. In addition, because the pre-approval process includes submitting a mortgage application and securing financing, it can accelerate the closing process.

    While a pre-approval letter doesn’t guarantee a home loan, it can make your offer stand out and make negotiations easier because it shows a seller that you’re a serious buyer. Many sellers require a pre-approval letter with your bid.

    During this step, your loan officer will provide a timeline and let you know what you need to provide. At this time, your loan officer will also explain which types of mortgage loans you qualify for to help determine which loan is the best option for your situation.

    To start the process and discuss your options with a loan officer in your local area, provide your contact information, and we’ll be in touch shortly.

When should I submit an application for a mortgage?

When you’re considering buying a home, long before you meet with a realtor or make an offer, applying for a home loan and getting pre-approved is the first step on your journey.

Once your application is submitted, your local lending team will make sure all the proper documentation has been gathered and is ready to move to the processing step. Then, a loan processor will assemble and verify your documentation and create a loan file. Lastly, an underwriter will evaluate your credit history, assets, as well as your employment, income and current debts. They’ll also assess the value and condition of your purchase property.

Your responsibility during this stage is to respond quickly to your loan officer’s questions and requests for additional information to ensure everything can move forward on time.

Other factors in the mortgage loan application process

When filling out a mortgage loan application, you may have to provide additional documentation if you answer yes to one or more of these questions.

  • Got a new job?

    If you’ve recently changed jobs, the key is to prove that you have a steady income. Be prepared to provide copies of recent pay stubs, work history documentation and tax returns. If your documentation shows that your new job is in the same industry and pays the same or more, that indicates a strong employment history and the ability to make monthly loan payments.

  • Recently changed your name?

    While the reasons behind your name change are not a factor, federal home loan rules require your lender to establish your identity. If you’ve had a legal name change, you may need to provide the court documentation of that name change.

  • Filed for bankruptcy?

    If you have a previous bankruptcy, you’ll want to include a letter of explanation with your mortgage application documents and bankruptcy discharge paperwork (if applicable).

  • Put down an earnest money deposit?

    Also called good-faith money, earnest money is a deposit made in addition to the down payment to reassure the seller that you’re serious about purchasing a property. When your application for a mortgage goes to underwriting, you may need to provide proof that the earnest money was deposited. This verification can include a copy of your canceled check or a written statement from the deposit holder.

Guild Mortgage can help you navigate the mortgage loan application process

With branches in neighborhoods and communities from coast to coast, we deliver on the promise of home. Our loan officers are part of your community and have been working with your neighbors since 1960. Start the mortgage loan application process today by finding a branch in your area.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.

By |Published On: December 28th, 2022|Categories: Guild Blog, Mortgage 101|Tags: , , |

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.