Things You'll Need When Getting A Mortgage
Things You'll Need When Getting A Mortgage
Getting a mortgage can sometimes feel like an impossible task. Not only do you have to convince a lender to let you borrow a significant sum, but you have to produce mountains of paperwork to prove that you are trustworthy. If you want to make the process a bit easier, you may want to take a look at what you'll need before you can purchase a mortgage in State College - or anywhere else in Pennsylvania.
If you're going to get a mortgage, you'll definitely need to sort out your documentation and have your financial house in order. Below are a few of the things that you'll need to keep in mind to get started on the road to a new home!
Mortgage lenders prize stability above all else. Most lenders want to see that you've been at your current job at least two years, if not longer. In addition to showing your length of time at your current job, it's also important to show that you've been steadily employed - huge gaps make lenders nervous.
D. Shane Whitteker is the owner and chief broker at Principle Home Mortgage in State College, Pennsylvania. He helps his clients navigate the mortgage process.
“If there are gaps in employment these will need to be explained and a two full year history will need to be met, meaning you may need to go back more than two calendar years to provide the full two year work history,” Whitteker says.
Working towards a degree - at Penn State or any other university? You’re in luck.
“There is good news for students - school counts toward this work history,” Whitteker says. “These guidelines change based on the type of mortgage applied for so make sure to discuss this with your mortgage broker.”
Your credit status
One of the most important factors in getting a loan is your credit score. Every lender has a minimum score with which they will work. The higher your score, the better your chances of getting a loan and the lower the interest rate. Remember, a high score represents a lower risk for the lender.
According to Whitteker, if you are making late payments on loans, remember that different loans will have a variable impact on your credit score
“All late payments are not equal,” Whitteker warns. “A late payment on a mortgage is viewed more stringently than a late payment on a car loan or credit card. Car loan late payments or installment loan late payments are viewed more stringently than a late payment on a credit card. So if you have to choose what to pay, keep this in mind.”
A few late payments in your credit history won’t necessarily ruin your chances at getting a great mortgage - but you’ll want to consult with a mortgage broker to be sure you’re availing yourself of all options.
“It is much better to make all payments on time for a minimum of 12 months but depending on the circumstances a mortgage broker can get around some late payments in the last 12 months,” Whitteker says.
What assets do you have?
Assets can mean a great deal to a lender. They represent sources that you can tap if you need to repay your debt quickly. Having access to assets makes lenders feel more confident and thus helps you to get a loan.
Also remember that the mortgage process contains fees that you will need to be paid for.
“A buyer must have enough money available to meet the required down payment and any closing costs that will need to be covered at settlement,” Whitteker says.
Some of those fees can be rolled into the cost of the mortgage, or even paid for by the seller - however you’ll want to discuss these options with your mortgage broker.
The number on your credit score isn't the only thing that matters. Lenders want to see how you've used your credit in the past. If you have successfully dealt with big payments and major accounts in the past, you represent less of a risk to the lender. Most lenders want you to have a credit history that shows you can pay back loans without a problem.
According to Whitteker, credit depth is an often overlooked aspect of getting a home mortgage.
“Credit depth is something most people really don’t think about but this plays a roll in qualification,” Whitteker says. “Credit depth references the amount of tradelines listed on your credit report. This is how the credit agencies calculate your score, along with payment history on these tradelines.”
Rent payment history
Rental payments don't always go into your credit score, but they can tell a lender a great deal about whether you will be likely to pay off any mortgage. A letter from your landlord stating that you've successfully made all of your rent payments on time can go a very long way.
“Pay your rent by check,” Whitteker recommends. “This is a big thing that many first time home buyers miss. This isn’t necessary for all first time home buyers but becomes a more significant factor when a manual underwrite is done or when credit depth is lacking.
Medical bills payment history
Medical debt is the biggest source of bankruptcy proceedings in the United States. While many lenders will give mortgages to those with significant medical debts, they want to know that you've been paying your bills on time. Medical collections are not viewed as strictly as other types of collections but they do have a significant impact on your credit score which significantly impacts your interest rate and can impact your ability to be approved.
“Keep medical bills from going to collection,” Whitteker says. “I see this one a lot where clients do not pay attention to medical bills. Doctors and hospitals or other providers will typically not file a collection if a small monthly payment is being made on the debt.”
The factors above all matter when it comes to getting a mortgage. Always make sure to check with your local mortgage broker to find out the factors that matter the most and the paperwork you'll need to get a mortgage. With the right preparation, you can make getting a mortgage an easier process.
“The bottom line here in my opinion is to take the extra step to prepare properly for your mortgage application and qualification,” Whitteker says. “For someone that has credit issues you may need to put together a one to two year plan to prepare. Credit repair really comes down to proper payment management.”
You might have everything mentioned above taken care of, but that isn’t all you'll need to close on a home - don’t forget the paperwork. The factors below will play a huge role in the types of mortgage loans that will be available to you.
The last 30 days of your pay stubs
If you are an employee of a business, you will need to bring at least the last month's worth of pay stubs to your mortgage broker. For those paid bi-weekly, this means bringing in your last two checks. If your pay fluctuates, you may want to bring in several stubs in order to show your typical pay. Note that this only works for typical employees - if you are a business owner or a 1099-contractor, it's your annual taxes that will really matter.
Last two years of w2 statements
Steady income is one of the most important factors in getting a mortgage. As such, you'll want to bring at least the last two years' worth of W2 statements to your broker to prove that your income is steady.
Last two years of federal tax returns
The ultimate proof of your income is your federal tax return. Two years worth of returns helps to show that your income stays relatively steady year over year. If you have experienced any kind of financial setback, showing a major upward trend in your tax returns can also be positive.
Last two months of bank statements (all pages)
It's not just a steady income that your local mortgage broker needs to see. Lenders also want to know about your cash on hand as well as your monthly expenditures. Remember, the goal of any lender is to make its money back so they want to know if you can pay. It's also generally important for lenders to ensure that your sources of funding for the loan don't come from other loans - doing so creates a situation that is generally untenable for lenders.
Two forms of ID I.E. driver’s license and social security card
The easiest thing to bring along is your identification. You'll need to bring along at least two forms to satisfy most lenders. A driver's license and your social security card are preferred, but ask your mortgage broker if there are other forms that you might be able to bring.
Statements from any other account that funds for closing will come from (60 days worth)
If you're going to fund your closing from something other than your bank account, you'll need to bring statements from those accounts as well. Again, this is to prove that you have access to your money and that you're not using a problematic source just to close on your home.
To learn about what you will need to do for a mortgage, contact State College mortgage company Principle Home Mortgage. They specialize in helping their clients through each step of the mortgage process.