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- Know your credit
- Ensure you can document your financial history
Prepare thoroughly for your home loan application to go smoothly
A home loan application can be very confusing for some people. If you're in the market for a home, but have never even seen a home loan application, this guide will help you better prepare for your loan application. After reading this information, you should have a better understanding of the loan process.
Itemize Your Debt
Before you do anything, you first need to establish whether or not you can afford a loan. This will save you significant time and money. To figure out if you have the finances to take on a loan, you first need to identify your debt. List your items of debt on a piece of paper. Debt means anything you can't pay off within a month, such as car payments, credit card balances, alimony, etc. Collect all paper work related to your debt and create a list of everything. Your debt will come into play when applying for a loan so you need to know and have available everything related to your debt.
List Your Recent Addresses
Part of the loan application process involves listing your previous residences. This includes apartments and times lived with any relatives. It may be difficult to recollect every location you lived, so think back as far as you can. Your resident history should be listed on your credit report, which is something you should also obtain prior to the loan application process.
Before you even look at a loan application, get a copy of your credit report. To get a copy of your credit report, the 3 major reporting agencies (Equifax, Experian and TransUnion) are required by law to provide you with a complimentary copy of your credit report once every 12 months per your request. However, each agency will most likely have a different score for you depending on the particular credit information provided to that particular agency. So, if you want a better idea of what your credit score actually is, request your credit score from all three agencies and figure out the average.
List Your Assets
You've already listed your debt; now it's time to list your assets. An asset is anything that has monetary value. This includes stocks, bonds, savings account funds, vehicles you own out right, and other property. Just like with your debt, collect all relevant paperwork and list out everything. Your assets are advantageous to you when applying for a loan and are referenced in the loan application.
List Your Employment History
Your employment history is also considered when applying for a loan. So you want to have all paperwork connected to your current and prior employment on hand for the application. Collect any and all W-2 forms from the last 2 to 3 years. Your employment history is looked at during the application and scrutinized based on income and any recent shifts in employment status. Any sudden or unexplained job changes within approximately six months of applying for the loan will go under a scrutinizing eye. Lenders look for solid employee history. If you've been jumping from job to job within a six month period, it shows unstable or erratic income possibilities. As a rule of thumb, stay with one job for a significant period of time six months to a year prior to applying for a loan. As with your payment habits, try not to make any sudden job changes within the 6 months to 1 year period prior to applying for the loan. Income changes look especially suspicious. If you experience a sudden dramatic increase or decrease in income be prepared to provide a full verbal or written explanation along with your paperwork.
Get Your Financial History in Order
Next you'll want to be prepared to meet any stipulations, or stips, that could come with a loan application. Frequently, this will include copies of your last three months' bank statements and pay stubs. If you are really unorganized, there are programs that let you state your income and assets, but they usually come with a slightly higher rate or more fees from a lender.
If you follow these steps prior to applying for a loan, you'll be better prepared and have the most recent, complete, and up-to-date information for your loan application. Not having all the necessary documentation and itemized lists could delay the application process or even result in you not getting the loan.
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