Now that the spring home-buying season has arrived, house hunters need to be ready with their mortgage financing in place so they can make a quick offer when they find the home they want.
Michele D. Hammond, a private client home lending adviser with Chase, shared several tips to get started:
1. Gather your papers: Hammond suggests following a “two-by-two-by-two system” — gather your two most recent pay stubs, tax returns, W-2s and bank statements from your savings and checking accounts. You’ll also need to provide a 4506-T form — which the lender can use to verify your income with the IRS — and your signed home purchase contract. To avoid delays and remain clear and transparent, provide evidence of all forms of income.
2. Track the details: How you earn your money could change the paperwork. If you work hourly, part time or are paid weekly, you’ll need four pay stubs, according to Hammond. Self-employed applicants require two years of tax returns and their most recent profit-and-loss statement to show their revenue, costs and expenses during a fiscal year.
3. Test your mortgage fitness: When it comes to determining whether you’re fit for the loan you want, lenders assess four main factors: income, credit score, assets and collateral. Often, Hammond says, clients omit information or claim earnings that don’t match their tax return. “When a client can’t produce the correct return, we must qualify with what the IRS presented,” she wrote in an email.
4. Get in top financial shape: Hammond recommends:
• Hold off on changing jobs: Lenders look for job stability when they evaluate your ability to repay your loan. If you must switch jobs while applying for a mortgage, be sure that your new base salary qualifies you for the same loan amount. And keep in mind that only your base earnings count toward your income, until you can produce at least two years of bonus history.
• Avoid carrying excessive debt: Your debt-to-income ratio is an important factor that lenders consider when looking at your fitness for a loan. Reducing debt can make your finances look more attractive.
• Eliminate any unnecessary monthly expenses beyond housing: You can use the additional money to pay down debt or increase your down payment, both of which could put you in better shape when it comes to applying for a loan.
• Build your credit history: If you need to build your credit history, try making frequent payments on a small credit card. “If you pay on time and consistently, your score should reflect that,” Hammond said.