What documents will I need to get a mortgage?

BY Sabrina Karl

Applying for a home loan may be one of the more paper-intensive processes you’ll go through in life. Fortunately, much of what you need you’ll already have on hand or can easily access.

The documents mortgage lenders require generally fall into three categories: those documenting your income, your debts, and your assets. In addition, a variety of miscellaneous documents may be necessary given your situation.

At the top of the list is documentation of your current income, as well as how much you earned the past two years. Lenders will typically want to see your most recent two tax returns.

If you work for an employer, you’ll additionally need to present your latest W-2 form and last two pay stubs, as well as the names and addresses of any other employers over the last two years. Meanwhile, the self-employed will need to provide a year-to-date statement of profits and losses, as well as two years’ worth of 1099s and tax returns documenting the self-employed income.

The next bucket of documentation concerns debts. You’ll need to list all of your current debt balances and monthly obligations, including auto loans, student loans, and credit card balances. You won’t need to provide statements, though, as the lender will verify information against your credit report.

Next comes asset documentation. This includes the last two months of statements for any bank, CD, retirement, and investment accounts you hold, as well as for any life insurance policies with a cash value or owned real estate.

Lastly, various miscellaneous documents may be required given your specific situation, such as a letter confirming any received gift money is not expected to be repaid, proof of one year’s rent payments if you are a renter, or your divorce decree if you’ve divorced.

Why you should still consider local mortgage lenders

By Sabrina Karl

Anyone shopping for a home loan can see that online players have become a dominant force in the mortgage marketplace. Whether it’s big-name traditional banks or online-only lenders, the push to shop nationwide is as strong as ever.

But working with a local lender can still offer benefits, especially for certain types of homebuyers.

When you apply locally, you’ll be working directly with an individual loan officer, and most likely will meet with them face to face. This may seem simply quaint to some, but for others it can feel like a welcome friendly face during an otherwise intimidating process.

The feel-good aspect of personalized service is only part of the equation, though. For instance, self-employed homebuyers or those with multiple income streams may have difficulty gathering all their documentation, and a loan officer can assist in that process.

Mortgages by local lenders can also be approved more speedily, in some cases, since you are applying to an individual instead of a massive department that receives hundreds of applications a day.

A local loan officer may also be more flexible in approving your the loan. Whereas big lenders have rigid underwriting guidelines, a local lender may have more leeway. This is particularly true if it will keep the mortgage rather than sell it to Fannie Mae or Freddie Mac.

Local lenders often can even help if they foresee your application being rejected. They may be willing to work with you on steps that will strengthen your application so that your mortgage can be approved in the near future.

Rates and fees will of course be an important consideration. But for homebuyers who may want or need a more personal touch, a speedier process, or greater approval flexibility, the lenders in your community are worth a look.

What is an FHA mortgage?

By Sabrina Karl

Mortgage shopping will pit you against numerous terms and acronyms that may leave you scratching your head. One you’re likely to encounter is an FHA loan, and though some 8 million U.S. homeowners have this type of mortgage, you may be unfamiliar with what it is.

A FHA loan is a mortgage backed by the U.S. Federal Housing Administration. In the same way that private mortgage insurance, or PMI, guarantees conventional mortgages for those putting down less than 20 percent, the FHA provides mortgage insurance on FHA loans.

This backing makes lenders willing to extend mortgages to homebuyers they would have otherwise turned down. Namely, FHA insurance makes it possible to secure a mortgage with as little as 3.5 percent down, and/or a credit score as low as 580 (or possibly even lower), bringing homeownership into reach for many more low-income buyers than conventional loans would serve.

FHA loans can also allow gift money to be used for the down payment or closing costs, and can be less restrictive on required debt-to-income ratios for the buyer.

Of course, there are trade-offs. The biggest is that FHA borrowers must pay two different fees in exchange for FHA insurance. First, a one-time mortgage insurance premium of 1.75 percent of the loan amount is applied at the time of closing. Second, a modest ongoing premium, ranging from about half to one percent of the loan amount annually, will be due each month for the life of the loan.

Since FHA interest rates may or may not be better than conventional rates, borrowers with ample down payment funds and a decent credit score might be better served with a standard mortgage. But if your down payment or credit rating are stumbling blocks, an FHA loan may be your ticket to getting into a home.