When you apply for a mortgage, the lender needs to be confident that you can and will repay the loan on time, so your Mortgage Loan Officer may ask a lot of questions. Being prepared can help you minimize stress and wasted time, so here are some of the key questions you should be ready to answer.
Employment and Income
Where do you work and how long have you been there? How much do you make? Do you receive a set salary or is your income variable?
If you’ve been with the same employer (or at least doing the same type of work) for several years and you have a steady salary, proof of income is straightforward. You’ll need to provide last year’s tax returns and W-2 form and your most recent pay stub. If you’re a contractor or self-employed, you may need to provide 1099 forms or profit and loss statements for your business. If you receive child support or alimony or receive income from other sources, you’ll need to provide proof of that income as well.
Expenses, Debts, and Credit History
What are your total average monthly expenses? Do they include debt payments? What debts do you have? Are there any issues with your credit that you’d like to explain?
Your monthly expenses are important because the lender will want to make sure you’re able to comfortably afford the mortgage payments, and your total overall debt (credit cards, car loans, student loans, alimony, etc.) is needed to calculate your debt-to-income ratio. If your monthly debt is more than 36% of your gross income, you likely won’t get the best interest rate — or your loan application may be denied. Your credit score can also affect your interest rate. If your score has been lowered due to factors that you believe do not reflect your real creditworthiness (say, a dispute with a landlord), bring documentation to support your position.
Assets and Down Payment Savings
How much money do you have in your savings account and other accounts such as a 401(k) and investments? How much have you set aside for your down payment and closing costs? Where did the down payment come from?
Your lender will want to make sure you’ll still have cash in the bank after closing. And if some of your down payment is coming as a gift from a family member, you’ll need to provide a letter confirming the gift.
Type of Property and How You’ll Use It
Are you looking to buy a single-family home, a duplex or row house, or a condominium? Are you planning to live in it full time, or will it be a vacation home or a rental?
Mortgage rates are lower for single-family homes and for primary residences. You’ll also need to take into account the other types of expenses (insurance, property taxes, homeowners association fees, etc.) that will vary based on the type of property.
Applying for a mortgage can be complicated, but the process will go more smoothly if you plan ahead and collect the necessary documents beforehand. If you have questions, or if you’re ready to apply for a home loan, contact one of our Mortgage Loan Officers directly.