Buying a home is often a lengthy and complicated process. Whether you’re a first-time homebuyer or it’s the tenth home you’ve purchased, it can be tough to juggle the different steps and coordinate between the key players. To help make the process smoother, we recommend five steps you can take to get ahead of the game.
Taking the time to gather the documents you’ll need before you reach that last minute scramble can give you a leg up in the market. But what documents do you need when you are buying a home? Most of the information required is to secure a loan or mortgage for the purchase of a new property. If you are fortunate enough to be able to pay cash that can simplify the process. If you are applying for a mortgage, gathering the exact paperwork needed can vary depending on your lender, loan amount, and other factors. However, there are some key documents that you can count on providing during the home buying.
Preparing for buying a home
Before starting your search, it is beneficial to speak with a lender or mortgage broker to get prequalified. In order to do so, they will need specific documents. Then, once you find a property as you go through the escrow and closing process there are additional documents needed. You can break these documents into three different categories: 1) Applying for a mortgage, 2) Reviewing the property, 3) Closing the deal. Today, we will focus on the first part of the process and five important documents you will need before buying a home.
1. Proof of employment
When you apply for a home loan, the main question a lender will have, is how are you planning on paying your mortgage? A lender will want proof that you are able to make consistent payments each month. Since steady income or access to funds is a key factor to securing a loan, lenders will require evidence of stable employment. To do this, they might request copies of pay stubs, tax documents, and/or the contact information of your employer. You should prepare by compiling a contact list of your last two years of employment, including company names and the contact information of your former bosses. Additionally, be prepared to go through this process more than once, as lenders will likely re-verify your employment during the closing process as well.
2. Proof of income and assets
In addition to providing information regarding your employment status, you will be required to show proof of income and assets. Again, steady income is the main factor that lenders look at in determining your mortgage amount. You will want to show at least 30 days of income in pay stubs. You can acquire these through an HR representative if you don’t already have copies. Lenders might also request bank statements, tax returns, retirement account statements, gift letters, and other documents that show proof of income. These documents allow lenders to see that your income is in fact what you claim it to be and provide information on the source of your down payment.
3. Debt information / credit reports
In addition to your employment and income records, securing a loan also depends on your debt-to-income ratio. Lenders want to know if you will be able to make payments on a mortgage with your existing debt. You will need evidence of any outstanding loans you have. This includes student loans, auto loans, additional mortgages, and credit card debt. Lenders may also request information on spousal or child support if applicable. Plan to gather up-to-date statements from each account showing your remaining balances before buying a home. If you want to go a step further, gather account numbers, monthly payment amounts, and any other information. To determine debt, lenders will also request a copy of your credit report. This holds information on payment history and your ability to repay loans.
4. Tax documents
When you are buying a home, you should have at least two years’ worth of tax returns and W2s or 1099s. Make sure your tax documents are signed. A long-term history of income demonstrates the ability to pay your mortgage off in the future. If your tax records show dramatic changes, your lender might require further documentation. Lenders might also request Form 4506-T, which gives them the ability to gain a copy of your taxes from the IRS.
5. Earnest money source
The final document needed in the loan pre-approval process is proof of earnest money. Earnest money is a deposit held in escrow, while you are buying a home. Before you get to that step, however, you’ll need to provide a source of funds adequate to cover that cost. If this money is coming from a bank account, a simple PDF of the account history should work as proof. If you are gaining the money as a gift from family or in any other way, you will need to provide confirmation of that source.
A lender may require additional documentation from you, but having these five documents pulled together in advance and ready to share can save you lots of time during the closing. It can significantly speed up the loan application process, which can be tedious and hold-up an opportunity to negotiate and buy a home.
Securing the loan
Once lenders review all these documents along with your loan application, you will get a pre-approval letter. This letter will state how much you are able to borrow. Since this letter significantly impacts your budget, agents wait until you have it to start showing you houses.
Then, you’re ready to review properties and begin making offers!
When your offer is accepted, Landmark Title is here to help. Our team of seasoned professionals and experts is well versed in highly complex transactions and understands what is needed to help ensure a smooth closing process. If you are in the process already or considering buying a home, contact us to get your questions answered and to learn more about our services and expertise.