Buying your first home should be one of the most exciting times of your life! However, it will also turn out to be one of the most confusing and stressful times if you're not familiar with the loan application process. While the process shouldn't be stressful, unfortunately there are several items that you're going to need that may confuse you and that you may find intimidating. Hopefully, we can help remove some of the stress and uncertainty by explaining the process to you. While you're saving for your down payment you may want to review the forms and documents that you're going to need! This is the most recent article in our series about the home loan application process. You may also wish to check out our prior two articles: understanding closing costs on your 1st home and the math behind first time home ownership.
Get Pre-Approval While Saving Up Your Down Payment
You've probably seen ads everywhere that tell you that you can be pre-approved for a loan prior to finding a home. While this is technically correct, the real story is that a lender can only tell you how much of a mortgage you qualify for assuming that nothing changes from the date you file your initial pre-approval application until the time you file your final loan application. Don't be misled into thinking that a pre-approval guarantees a loan. While a pre-approval will help you shop for a home knowing how much you can spend, it doesn't guarantee that your loan is going to be approved. Be sure to clarify with your lender just exactly what the pre-approval means before you sign a purchase and sales agreement.
Once You Find A Home
While saving up your down payment, it makes a lot of sense to begin your search for the right home. Once you are done saving for your house down payment and find the perfect home you will have to begin the loan approval process. You'll need to provide a number of documents as well as a series of forms that allow the lender to validate all of the information that you provide. At a minimum you will need the following documents when applying for a mortgage:
- Pay Stubs - For anyone on the loan application (i.e. if joint application you'll need both) for at least one month (may be 4 or 5 checks) with the most recent being not more than thirty (30) days old.
- Tax Returns - At a minimum you will be asked to provide two (2) years of income tax filings for both federal and state. Check with your lender as some lenders may require three (3) or more years.
- Bank Statements - You will be asked to provide at a minimum the last three (3) bank statements for all checking, savings or investment accounts. Some lenders may require up to twelve (12) months worth of statements.
- Credit Card Statements - Typically one (1) credit card statement from each credit card company will suffice though these will vary from lender to lender.
- Other - You may also be asked for insurance bills, verification of rent payments (typically cancelled checks will suffice), auto loan information and other proof of any indebtedness.
- Copy of Purchase & Sale Agreement - If you have signed a purchase and sale agreement you'll want to include this.
- Proof of Availability of Down Payment - There are regulations which apply to how much of this money may be gifted to you, how "old" the money has to be and other regulations. Don't get caught off guard! Ask the lender ahead of time about these requirements.
What Is Done With All of This?
You must be wondering with this flood of paper that you're being asked to provide what in the world is being done with it! Well, it's really quite simple. A mortgage application is called a Form 1003 and is required for every single mortgage loan application. Review the information carefully that is contained in this application and you'll be far more prepared to deal with the questions the lender is liable to ask you.
The Forms You'll Sign
You may be asked to sign several additional forms in addition to the Form 1003 (swearing to its validity). These forms may include disclosure forms that (a) state that you're agreeing to have a credit report run, (b) allowing the lender to confirm your rental payments and (c) allowing the lender to verify employment. In addition, the lender will most likely provide you with certain forms that are designed to protect you as well which include your right to have a copy of an appraisal, right to a copy of your credit report and your right to "rescind" the loan application.
What Happens After The Application Is Complete?
By law, the lender must provide anyone who files a mortgage loan application a Good Faith Estimate which must be provided to you within three (3) business days from the date of your application. It is important that you understand that this is just exactly what it says, an estimate. However, once your loan is in the closing process, this same estimate must be provided to you with a summary of actual costs versus the estimated costs.
Once You Are Approved For Your 1st House Loan
Once your mortgage loan is approved (assuming you've found a home and we're not talking a pre-approval) you will then begin the "closing" process. This process varies greatly not only among lenders but also in various states which have different rules. You may be asked for updated copies of pay stubs, checking account or savings account statements, you'll need to get an insurance binder for your new home and you may be asked for additional documents.
Work closely with your lender to find out the time frame for closing your home and make sure you thoroughly review all loan documents. Please remember this is a guideline we're providing here and you may have different regulations in your state. Our next installment: Your loan closing documents - more confusion! Overall, the goal of this series is to prepare yourself for the home buying process while saving up your home loan down payment. By understanding the process in depth while saving for your down payment, you will make the process so much easier. Hang in there, you're on your way to owning your first house!
This article is written by guest author Doreen Martel exclusively for Save For House.