While it’s good practice to speak with a Mortgage Loan Officer about 6 months before applying so that they can review your situation and customize a personalized strategy to help ensure you have a smooth closing, our helpful mortgage application checklist has some tips to keep in mind as you approach the big day of applying for your mortgage to purchase your new home.
New Jersey Mortgage Application Checklist
6 months before application
Stabilize your employment:
If you are planning on changing jobs in the near future it’s highly advisable to complete any potential employment transfers by no more than a month before application. The mortgage company will need as many as 30 days of paystubs for any new position so it’s a good idea to start and be settled prior to application. If that’s not possible then it’s advisable to wait to give notice until after you close. The mortgage company will do a verbal employment verification 3 days prior to closing and they will ask your current employer about “expectancy of continuance”. If you have given notice to your company that you are leaving this could be an issue that could impact your closing. In any case, if you are planning on switching ANYTHING regarding your employment or the way you are compensated before closing, it’s always a good idea to speak with a Loan Officer first to see if and how the change could impact your application.
Order Free Credit report from www.Annualcreditreport.com
It is always a good idea to stay on top of your credit scoring, especially before you apply for a mortgage. Credit is one of the four major factors in qualifying for a mortgage. Review the report with your loan officer or credit specialist to confirm there are no surprises and to see what options may be available for improving your score. Sometimes a 20 point differential in credit scoring can mean a big difference to the rate and terms offered by your lender.
Run numbers to see how much you will need for the transaction
With most real estate transactions, the amount needed seems to grow as you get closer to closing. Remember to consider down payment, closing costs, escrows for taxes, insurance, and HOA fees, upfront costs for insurance, survey, movers, etc., and initial home improvement costs. Lenders may also require you to show reserves after closing equivalent to 2 months mortgage payment.
Don’t co-sign for any loans without speaking to a mortgage loan officer
With most co-signed obligations, you are required to make the payment into account when calculating your ratios for qualifying. The exception is if the person that you co-signed for can show evidence of themselves making the payment on the transaction for 12 months. This means, if you are a co-signer for less than 12 months at closing you will more than likely need to carry this obligation as part of your debt.
Avoid Large Financed Purchases
Large Financed purchases such as cars, furniture, and big-ticket items generally pay off over a shorter period of time and as such require larger monthly payments which can significantly impact how much of a mortgage you may qualify for. Try to save the large ticket purchases until after closing where possible.
Keep your finances and your employment stable
Avoid reductions in pay or changes in how you are compensated. Don’t transition from a W-2 employee to a 1099 independent contractor as this is now considered self-employed and may require a 2-year history to qualify. If you keep a lot of cash deposits or money in business accounts start transferring it over to your personal accounts so as to smooth out the application process.
3 months before application
Keep credit card balances to a minimum
High balances on your credit card can affect your credit scoring. It’s a good practice about 60-90 days outside of your application to pay down credit card balances to the extent that you can.
Make sure all assets to be used are moved to personal bank accounts
Any assets that are located in non-personal bank accounts will be scrutinized. It is a good idea to move accounts from a business over to personal accounts about 3 months out from the application so that they can “season” in the account. Cash is ineligible altogether to be used for purchasing a home since it can not be sourced. As such, it is advisable to move any cash you may be maintaining into your personal accounts so that it is not reflected as a large deposit in the 2 months of bank statements preceding the application that the lender will require.
Talk with LO about doing pre-approval
2-3 months before you are ready to look for a home is always the best time to start talking with a Loan Officer regarding your circumstances. This gives you enough time to get any issues or potential challenges vetted upfront so you can go into the process with a better understanding of your ability to qualify.
Minimize payments on your student loans
It’s always a good idea to bring your monthly debt obligations to a minimum and this includes your student loans. If you have student loans, It’s a good idea to contact your student loan companies and ask them to put you on the lowest payment possible so as to minimize the impact on your debt to income ratio, which plays a critical role in how much of a mortgage you may qualify for.
1 month before application
See about improving your credit
Many lending mortgage brokers and bankers will allow you the opportunity to increase your credit score through their credit service. This increase in score is known as a Rapid Rescore. They do this by working with their credit reporting agency which can inform them about things that can be done in order to rapidly improve the score. These items may include paying down credit card balances, paying off debt, or simply being removed as an authorized user on certain accounts. Since even 20 points of credit scoring can impact your financing rate and terms it is always a good idea to talk with your loan officer to see if you can increase your credit score for better mortgage terms.
Document all deposits
Non-payroll large deposits (usually defined as more than 50% of your monthly payment) will always be scrutinized since the lender needs to make sure that you have not borrowed money for the transaction that needs to be repaid as this could obviously impact your ability to repay the mortgage. As such, they will ask for a paper trail on large deposits. Make sure that you examine your bank statements so that when you send them to your lender you can source with a paper trail any large deposits.
The Week of application
NJ Mortgage Application Checklist: Documents
While the required documents can vary based on your circumstances, it’s a good idea to gather the following documents available and handy for your lender
- A fully executed copy of your purchase contract (including all addendums)
- 2 years personal and business (if applicable) federal tax returns
- 2 years 1099, K-1 or W-2 forms
- 1 month of pay stubs
- 2 months bank statements (all pages even if they are blank)
- Award letters for SS, Pension, etc. as applicable
- If divorced a copy of your divorce decree and settlement agreement.
Your lender will advise you about any additional documentation that you may need to provide due to your individual circumstances, however, this will get you off to a great start!
Being fully prepared leading up to your application can prevent a lot of troubles and tribulations, which can be detrimental and emotionally taxing, especially after you’ve gone to contract on your new home. Avoid the headaches by being prepared upfront with our mortgage application checklist and other helpful resources.