Life is full of milestones: first steps, first date, graduation(s), weddings, and becoming a homeowner are among those most anticipated, though for many people, the thought of being financially responsible for the care and maintenance of the four walls around them can be the most terrifying of all. I get it!
“There is no one giant step that does it,” declares Peter A Cohen, chairman and CEO of Andover National Corporation, a public holding (investment) company. “It’s a lot of little steps.”
Becoming a home owner doesn’t just happen … there’s planning to be done, savings to be built, professional vendors to be hired, and financial data to be collected.
Many first time buyers are surprised scrutiny given to their financial life and at the detailing that goes into lending approval as they’ve only been advised to be mindful of their credit score and to be sure they have a bit of a nest egg in the bank. I’ve even heard some say it feels like their privacy is being invaded!! However, being prepared ahead for the paperwork the lender and underwriter will want is a key to reducing stress and increase the smoothness of the process. I recommend having the following ready to provide as soon as you start thinking about needing a preapproval, and not waiting until the mortgage bank asks:
W2: A “Wage and Tax Statement” reports an employee’s income from the prior year and how much tax the employer withheld. Have the most recent 2 years documents available. For self-employed borrowers, the underwriter will expect your most recent 2 years tax returns including any schedule documents attached to the filing.
Paystub: A pay stub is what you give employees with their paycheck to outline the details of how much was earned in gross pay and what deductions were made, leaving them with a net pay amount. Pay stubs should outline things such as tax withholdings, health insurance payments and retirement funding. Let’s take a closer look at what a pay stub is and what it includes. Providing the most recent 60 days of paystubs helps the lender and underwriter account for any pay raises, incentives or bonuses that may help push you to the next purchase level if those are not reflected in your last W2. Self-employed borrowers may be asked for a current Profit & Loss statement.
Bank Statements: A bank statement is a list of all transactions for a bank account over a set period, usually monthly.
The statement includes deposits, charges, withdrawals, as well as the beginning and ending balance for the period, along with any interest earned. It’s recommended that every account the borrower has in their name is provided to the lender even if funds from any account won’t be used for down payment or closing costs so the lender has a full picture of what your financial position is. Also, if the statement is 5 pages, send every page, even if the last one is blank or any pages are regarding bank policy and not your account specifically, otherwise the underwriter will request the additional pages ( which will surely be the day after you trashed them). And no, pics of the pile of cash under the mattress won’t work.
Gift Letter: A gift letter for a mortgage is a written statement confirming that funds given to a borrower for a down payment are a gift rather than a loan that has to be repaid. The letter must explain who is gifting the money, where the donor’s funds are coming from and the relationship between the donor and the recipient. For this document, you’ll also need to prepare whomever is giving you the funds to provide their own bank statements. Not only does the lender want to be sure they have the monies, they want to be sure that sharing the funds doesn’t leave the gift-giver in a financial bind themselves.
Buying a home, owning your own piece of the American pie, is a part of growing up and a major step towards financial maturity. Knowing what’s going to be asked of you and being prepared will reduce anxiety about this next life milestone.