It's no surprise that getting a home loan takes some time and effort. If you haven’t gone through it before, it can seem overwhelming. After all, this may be the largest purchase in your lifetime. The good news is that there are a few things you can do to master the process. Start with these five hacks:
Check your credit report
Don’t just assume your credit report is flawless because you haven’t missed a payment. Mistakes can happen and things can show up on a report that must be fixed. Review your report early so you aren't surprised by hiccups that could derail the mortgage process and even affect your ability to get the best loan terms. Check out this post if you need more help: understanding your credit score.
Set your baseline
The first price you hear will become your baseline, so anything more than that seems expensive and anything below appears to be a bargain. It sounds arbitrary, but that’s how we humans are. So, hack your baseline. Before you find out how much a lender will lend you, decide what is a smart amount to borrow. A rule of thumb is not to spend more than 36% of your income (before taxes and other deductions) on all your debt - that includes mortgages, credit cards, student loans, and other debts. Find this number first, and let that be your baseline. This boundary will keep you from being talked into purchasing more home than you can afford.
Prepare your documents
Let’s face it, there’s a lot of information a lender will need in order to review your loan application. It can be frustrating if you need to hunt for more documentation in the middle of the process. It’s much less stressful to pull together the information a lender may potentially need before you hit the ground running. Here’s a list of items you may need to provide:
- Driver’s license
- Social Security card
- Pay stubs for the previous 30 days
- Proof of additional income, such as Social Security benefits, child support, or alimony (if applicable)
- W-2 forms for the previous two years
- Tax returns from the last 2 years
- Checking and savings accounts statements for the last three months
- Retirement funds and other investment statements for the last three months
- The most recent statements for your credit cards, loans, and other debts
- A list of all your assets
- Proof of timely rental payments (if you’re not selling a home)
- Credit report
- If you received a cash gift to use as a down payment, your lender may want written proof that it is truly a gift and not a loan
Take it one step further...
Consider other situations in your life that may cause your lender to ask for additional documentation. For example, if you have been divorced, your lender may ask for a divorce decree. Here are a few situations that may require additional documentation:
- If you're self-employed
- If you or a co-borrower is active-duty military or a veteran
- If you earn a significant portion of your income from investments
The best route is to find a lender early and discuss with them what documentation you will need.
Get your pre-approval designation
Getting a pre-approval letter jump starts the process. A lender can review your credit history and determine how much you qualify to borrow. Additionally, your lender can identify potential problem areas that may slow the process down, like a mistake on your credit report (see Hack #1). It can seem counterintuitive to secure pre-approval before you have found a house, but it streamlines the process since you know what you can afford and you already have a lender working on your side. Here’s an easy way to get started with your pre-approval >>
If you’re ready to learn more, check out our short video to better understand the home buying process. If you have questions, give us a shout. In fact, starting with a simple conversation could be the best hack for you!
