House shopping is one of the best parts of homeownership. There’s so much excitement that comes with stepping inside your dream house. Once you find a home that meets your needs and budget, the next step is to apply for a mortgage loan.

But before you apply, you’ll need to find a preferred lender that offers the type of loan you want along with the best rates. Depending on the lender, you may be able to apply online or by phone.

During the mortgage loan application process, you’ll be required to provide personal information, such as your name and Social Security number. You will also need to provide all sorts of documentation to your lender.

What is a Home Loan?

A home loan is the most common way to buy property. Unless you’re paying in cash, you’ll need a loan to obtain ownership.

A home loan, also known as a mortgage, is an agreement between you and a lender. With a home loan, the lender gives money to you so that you can purchase (or refinance) a home.

In the event that you fail to repay the borrowed money, the lender can take the property. This is known as defaulting on the loan.

Before applying for a loan, there are some key steps you’ll want to take, including:

  • Ensuring you have a healthy credit score
  • Choosing the right type of home loan
  • Comparing lenders
  • Getting preapproved for a loan amount

Understanding the process for applying for a home loan makes the journey to homeownership much more enjoyable.

Additional read: Pre-Qualifying for a Loan vs. Loan Pre-Approval

What Documents Do I Need Before Applying for a Home Loan?

Whether you’re buying a home by yourself or with a co-borrower, certain documentation needs to be provided to your lender. This documentation is used to verify your financial situation, employment history, and creditworthiness.

Here are the types of documents that you’ll need to provide to your lender when applying for a home loan.

Tax Returns

Before determining whether you’re worthy of a home loan, lenders want to have a full understanding of your financial situation. When applying for a mortgage, you may need to sign Form 4506-T. This allows the lender to request copies of your tax returns from the IRS.

Borrowers can also provide copies of their tax returns directly to the lender. Most lenders will request at least two years’ worth of tax returns. Lenders review your returns to ensure that your annual income is consistent with the reported earnings from pay stubs.

Photo Identification

Providing photo identification, such as your driver’s license, is a must. This type of documentation allows your lender to verify that you are who you say you are. Photo IDs help to prevent identity fraud.

Bank Account Statements

Lenders assess your risk profile by looking at your bank statements and statements from other assets, such as a life insurance policy. Lenders may also request statements from investment accounts.

When reviewing these documents, lenders are looking to make sure that you have months’ worth of mortgage payment reserves. The more funds you have saved, the less risky you are as a borrower. Financial emergencies happen and lenders want to ensure that you have the necessary funds to keep you from defaulting on the loan.

Lenders also review your bank statements to confirm that your down payment has been in your account for some time.

Credit History Report

To assess your risk as a borrower, lenders will want a copy of your credit report so that they can review your credit history. Lenders can pull your report with written or verbal permission.

The higher your credit score, the less risky you are as a borrower. If you have a low credit score or blemishes on your report, be prepared to provide an explanation. For example, if you have a foreclosure or short sale on your report, you’ll want to write a statement to explain.

In turn, the lender can evaluate your risk and worthiness as a borrower. Lenders are likely to be more lenient about a one-time unavoidable circumstance versus frequent delinquency.

Rent History

If you don’t own a home already, your lender may request proof that you make on-time payments. As a renter, you’ll need to provide documentation that shows that you pay on time. One of the best ways to prove timely payments is to provide a year’s worth of rent checks.

If you don’t have an extensive credit history, your renting history is especially important.

W-2s (for the last 2 years)

Lenders want a clear picture of your finances, including your income streams. When applying for a home mortgage, you’ll likely need to provide pay stubs from the past few months to show your current earning. Lenders also request copies of your W-2s so that they can determine your overall financial health.

What are the Next Steps after Filing a Home Loan Application?

Filing a home loan application is the first step towards homeownership. Here are some of the next steps that you’ll need to take to solidify the title of the homeowner.

1. Review Loan Estimates and Choose a Lender

Just as you shop around for the best deal on a car or shoes, you also want to shop around for the best lender. When buying a home, you want to apply to at least three lenders. After applying, each lender will provide you with a Loan Estimate form.

Using this form, you can compare terms and costs from each lender. You’ll want to pay close attention to the interest rate and closing costs. It’s also important to look at the numbers in the Comparisons section, which details:

  • Total cost in five years
  • Principal paid in five years
  • Percent paid in interest
  • Annual percentage rate (APR)

Loan terms aside, it’s crucial that you find a lender that answers all of your questions. You want a lender that guides you throughout the home buying process so that you feel comfortable and confident.

2. Loan Processing

Once you choose a lender, the next step is loan processing. Your lender will thoroughly review all of your application details. During loan processing, the lender will verify your income, review your credit report, and confirm all of the details you provided on your application.

Be prepared to fulfill any document request while also answering any questions. Be prompt so that the process can continue moving forward.

3. Underwriting

During underwriting, there isn’t much you need to do as a borrower. You may need to answer questions or produce more documents, so be sure to stay in contact with your lender.

The underwriter’s job is to determine the risk of approving your mortgage loan. They look at all sorts of numbers, including your loan-to-value ratio, monthly cash flow, your payment history, and if the home you’re looking to buy is valued correctly.

4. Closing

After your loan has been approved by underwriting, the last step is closing! Once the loan is cleared by the lender, you’ll be given a date. Three business days before the scheduling closing date, you’ll be sent a Closing Disclosure form. This details the final costs of your mortgage.

Additional read: The Advantages of In-House Underwriting

A and N Mortgage is Here to Help

The home buying process is a lot less cumbersome when you’re prepared. After submitting loan applications to several lenders, the next step is to gather all of the financial documentation so that the process can continue.

If you’re looking to buy a home and want to learn more about your lending options, contact our team at A and N Mortgage. We offer a variety of home loans along with tools and resources to prepare you for homeownership.

We can guide you through the application process and see your application through the qualification for mortgage loans.

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

About The Author

Neena Vlamis, President of A and N Mortgage

Hi, I’m Neena Vlamis and I am the President and Owner of A and N Mortgage. I have ranked in the Top 200 per Scotsman Guide Magazine for many years in a row and have been a Five Star winner consecutively for the last thirteen years. My razor-sharp focus has led the company to an A+ Better Business Bureau rating since its inception.

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