Mortgage Pre-Loan Organization
It pays to be organized before you apply for a mortgage loan
Most people's finances are not organized. That's a fact. What constitutes being organized varies from person to person. We consider finances to be organized if: You are able to immediately locate important financial documents including insurance policies, tax returns, and bank statements; you have an awareness and record of how many installment credit accounts you have open and the balances on those accounts; and you have a recent copy of your credit report and know your credit score.
Our personal financial status and credit rating is extremely important. Certainly, it is important enough to devote the small amount of time that is required to be organized. If you are planning to purchase a home, or refinance you existing home, it is mandatory that you be organized. It will be much easier if you are prepared in advance and know what might be lurking on your credit report that could affect your loan standing.
The following is a list of the types of documents that your lender will require of you when you apply for a mortgage. There may be additions or omissions depending on the lender.
- Most recent tax return, including W-2s
- Current pay stubs
- If self-employed: Profit and loss statement
- Bank statements
- Statements for retirement accounts
- Brokerage account statements
- Homeowner's insurance documents
- Verification of ownership of any and all investments
- Proof of income from sources other than employment
This is the information that you will need to apply for a loan. What about your other important documents? You might as well organize those too. File cabinets and folders work very well for organizing important documents. All you need to do is put the subject title on each folder then fill the folder with the relevant documents. You can have separate folders for homeowner's insurance policies, automobile insurance policies, automobile titles and repair receipts, brokerage account statement, retirement account statements, bank account statements are you getting the idea?
Other factors to consider before applying for your loan
If you are planning to refinance, you should first consider your reasons for doing so. Are you trying to lower your house payment? Perhaps you are trying to consolidate consumer debt. Maybe, you are planning an addition to your home. It is important to consider your refinance in relation to your current and future financial situation.
If you are buying a new home you will need to first determine how much home you can afford. Factors that affect this are how much equity you have in your existing home, your down payment, the amount you can afford for your monthly payment. There are many excellent financial calculators available to assist you in this.
Make sure that you have clean credit before you apply for your loan. The better your credit score, the lower your interest rate will be. You can obtain a copy of your credit report and resolve any problems before applying for the loan. An important consideration to keep in mind is that your debt should not exceed 36 percent of your gross income. You can still qualify for a loan with less than stellar credit, but you will pay a higher interest rate.
Since you have already considered your financial goals, you can now do some research and decide which type of loan works best for you. If you have paid for a long time on your home, you may want to consider a 15-year loan. The interest rate is lower. Maybe you need to take some cash out to complete an addition to your home. There are many different types of loans and many different lenders. It really pays to do your homework. Click here to see our listing of preferred lenders.
If necessary, lock in your rate well in advance of closing. For more information about rate locks see our article about the subject here.
A little bit of preparation can pay big dividends when it comes to home loans. We hope that you will take the time to maximize your mortgage potential.