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Compiling Your Financials for Qualification

Updated: Mar 17

The idea of getting financing for a home seems overwhelming. But don’t worry, it really isn’t! If you plan to buy a home, you’ll need to gather financial documents to prequalify or qualify for a home loan. Loaning money requires some paperwork and documentation, so this post walks you through what you’ll need to gather so you can get prequalified! As always, I’m a resource to help you through this process, so give us a call at 720-600-9332 if you have any questions.


Check Your Credit Report


A good first step is to check your credit report. You can get a free credit report every year from annualcreditreport.com. It pulls info from the three major credit bureaus and provides your credit score (the higher the score, the lower your mortgage loan rate). Even if you’re not buying a home, it’s good to check this regularly because you can monitor items on your report and dispute any errors. Some mortgage loans have minimum credit score requirements.


Get Prequalified


Getting prequalified allows you to know how much a lender will give you for a home. This info allows you to look for homes in your budget. Depending on the market, a prequalification or preapproval might be good to do before you browse potential homes. Preapproval takes prequalification one step further because the lender verifies your financial documents in advance (W2s, paystubs, bank statements, tax documents, debt to income ratio, etc.). More details about these documents in a moment!


Requirements and Needed Financial


Documents


Depending on the type of mortgage loan, you’ll need to evaluate your financial situation:

  • Tax returns: Lenders usually like to see one or two years’ worth of tax returns. They want to make sure your annual income matches your reported earnings through pay stubs. They’re also making sure there aren’t huge fluctuations from year to year.

  • Employment. Lenders typically require proof of steady income, focusing on the past two years of employment history. If you’re self-employed, you’ll provide personal and business federal tax returns.

  • Pay stubs, W-2s or other proof of current income: You’ll likely need to provide a few months of paystubs. You’ll also need proof of other sources of income, such as contract work (1099) or child support (divorce


decree).

  • Bank statements and other assets: Lenders want to see direct deposit proof as well as investment assets and life insurance. Your bank statement also shows your account balances. Lenders like to see that you have enough for a down payment and it doesn’t magically appear right before closing.

  • Credit history: As noted earlier, credit history is part of your financial health. Lenders want to see if you make payments on time and have any blemishes.

  • Gift letters: If family or friends will help with your down payment, you’ll need to get letters from them to say the money is a gift and not a loan.

  • Photo ID: An ID proves your identity.

  • Renting history: If you’re buying your first home, the lender might want to see proof that you paid your rent on time in the past.

  • Debt-to-income ratio: Your DTI ratio (DTI) ratio is measured by dividing your total debt by your gross income. Lenders have preferences on the percentages. For example, some conventional lenders prefer a DTI of 45% or less, but may raise it to 50% with higher credit scores and additional mortgage reserves (money in the bank).

Interested in a Mortgage?

I’ll work with you to find a great lender and can help find your dream home! There are plenty of houses for sale in Longmont and the surrounding areas. I’m an expert Longmont realtor who you can rely on to get you into your perfect home.



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