If you are buying a home, you are going to need a home loan. So, what steps do you need to take before submitting your mortgage application?

Preparing for Submitting a Mortgage Application

At first glance, you may think a mortgage is simply a loan of money in exchange for a promise to pay. While this is true, another perspective is that a mortgage is a hedged bet. The mortgage lender is trying to determine what type of a risk you are, to wit, what is the likelihood you will repay the loan? The hedge, of course, is the fact the lender can take and resell your home if you default on the loan, but lenders do not like to do this. They are in the business of loaning money, not selling homes.

The number one thing you are going to need is documentation. The lender is going to analyze the risk associated with lending you money by looking at your recent and not so recent past. This process is known as underwriting in the mortgage industry. The underwriter will use various algorithms and benchmarks to approve or deny your loan application. Let’s take a closer look.

The first thing you are going to need for a mortgage application is documentation regarding your earnings history. The lender is typically going to want to see at least a two year history of steady earnings. The documentation is typically provided in the form of W-2 tax form from an employer. For self-employed individuals, the lender is typically going to want to see the last two years of your tax returns. You should also provide any and all documentation supporting other assets you might have such as mutual funds, stocks, bonds and so on.

Another area you should focus on is your credit. You don’t need any documentation per se as the lender will obtain your credit report, but this doesn’t mean you should sit back and relax. Prior to applying for any mortgage, you need to get copies of your credit reports. Take a close look at them. Contest anything that looks fishy. Even small changes to your credit can raise your credit score. The higher your credit score, the better.

If you have good credit and consistent earnings, the above documentation should suffice. The lender will undoubtedly ask for more supporting documentation, but you can deal with that when the request is made.

Raynor James is with FSBO America - free information on mortgage loans.

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