Welcome to another edition of the obtaining a mortgage series here at Financial Highway. If you feel that you’re ready to purchase a home after last weeks post, then you will surely be prepared for today’s article.
Part 2: Get your documents together before you apply for a mortgage.
Your income documents.
You may feel that you earn a decent income, but you need to prove this to the bank. Nobody will ever take your word for something when it comes to dealing with hundreds of thousands of dollars. Before you can begin the mortgage application process, you must find your income documents that you’ll need to bring to the bank. Now I know that this section will seem boring at first glance. However, after the credit crunch of late-2008 this is simply the reality. Lenders are going to be much more meticulous with documents. You’re really going to have to prove that you’ll be able to make your mortgage payments, by having a sufficient income.
There will likely be two types of an income that you could earn:
Standard.
Most of us will just need to bring in the standard documents that are employer provides us with every year around tax season. This is solid proof of your current income. Anyone that is willing to loan you any amount of money will want to see this because it’s proof that you DO earn an income and it shows exactly how much money you make.
Self-employed.
This is where things might become a bit more complicating. As a self-employed entrepreneur you might have a more challenging time proving your income. The reason here is fairly self-explanatory. As an entrepreneur your income fluctuates. The lenders needs to be extremely positive that you’ll be able to make your mortgage payments, even when you experience a lean month with your business. You’re going to have to perhaps show contracts, accounting documents, sales, or a solid savings account, as proof of your income here.
Your assets/savings.
How much are you exactly worth? Do you own a car? Do you have any retirement accounts?
The lender is going to want to see documents showing how much money you have in all of your various different accounts. The best option is print off all of your account balances. From your online savings account to your retirement accounts. The reason for this is that you need to prove that you’ll have enough savings to survive if you were to lose your job or experience any financial setbacks.
A few tips on documents.
Take accountability.
This would be the perfect opportunity to see where your finances stand. You might realize that you have more savings than you originally thought you did. On the other hand, you could also realize that your financial system is a mess. Either way, you need to hold yourself accountable. If you decide that you’re not ready for a mortgage then you could use this as a wake up call to make necessary changes. If you decide to make changes today, you could be ready to purchase a home by this time next year.
Find lost information.
It’s easy to lose basic information. Find out what documents you’ve lost over time and make sure that you retrieve them. You might have to call your bank up and anyone else you deal with to make sure that you have all of your financial information available to you. This can also be a good opportunity to shred old or useless documents so that you can protect your privacy.
Are you still ready to apply for a mortgage? Stay tuned for next week.
Part 1: Are you ready to purchase a home?
(photo credit: Claire L. Evans)
