Applying for a home loan can take about six to eight weeks on average. If you’re in step one of purchasing a home, take some time to gather some important financial information.
As a first-time homebuyer, knowing ins and outs of the lending process and what is required can help speed up your timetable. Lenders often check for proof of financial security, a manageable debt-to-income ratio, and positive credit history.
To prove you’re able to buy a home, you’ll need an orderly paper trail. It’s a good idea to prepare any financial documents you may have that offer proof of good financial standing.
Before you meet with a lender, follow a few of these steps when applying for a home loan.
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Income and Applying for a Home Loan
When it comes to your income, lenders are looking for stability. Proving your financial information will require W-2 forms, pay stubs, income tax returns, and alimony or child support documents. All of these documents reflect a different piece of an individual’s personal finances puzzle.
Most lenders will ask for the previous two years of W2s, the last 30 days of pay stubs, and tax returns covering the last two to three years.
When you provide these documents, they will need to support a consistent metric of your reported earnings. If there are massive fluctuations from year to year, a lender may have additional questions. This can raise red flags.
Those individuals who are applying as self-employed may require some additional steps that are necessary to prove their income. A 1099 form, direct deposit, or other documents will be required.
Credit History
A credit report pull is a big step when applying for a home loan.
This report will provide a detailed summary of your accounts, payment history, and other debt figures to help lenders learn more about your finances.
If there are any, a lender will discuss the blemishes on your credit report before you’re approved to buy a home. If you’re aware of various negative items, prepare a statement if it’s beneficial to the unforeseen circumstances.
For most home loans, you’ll need at least a 620 credit score. Some Federal Housing Administration (FHA) loans offer borrowers with a credit score of around 500 financial options if you’re below that threshold.
Renting History
If you’re a first-time homebuyer, you’ll need to prove some consistency of on-time payments. Rental history is a great way to show financial security and more.
Lenders will ask for evidence that you pay your rent on time and may even ask your landlord for an itemized rental history. In some cases, landlords could request rental payment proof (canceled rent checks) for up to a year.
Your rental history carries a lot of weight if you’re lacking a bolstered credit history.
Once you’ve mastered all these steps and are approved for a home loan, you may need to jump through additional hurdles like providing a Certificate of Currency.
Understand Various Investments
Applying for a home loan isn’t the only important investment that you can make in your life.
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