Getting a mortgage loan can be a daunting process, but it doesn't have to be. Knowing the requirements and having the right documents ready can make the process much smoother. Credit is one of the most important factors in getting a mortgage loan, and conventional mortgage guidelines require a minimum credit score of 620. The higher your credit score, the better your mortgage rate and PMI premiums will be.
It's also important to consider PITI, private mortgage insurance, and closing costs when calculating how much it will cost you to buy a home. Applying for a mortgage usually involves providing the lender with your tax returns, bank statements, and documents that prove your income, such as W-2 forms and pay stubs. You'll also need to have cash reserves, also known as emergency funds, to cover several months of mortgage payments in case of an emergency. If you're buying a vacation home, you should be aware that Fannie and Freddie have added significant margins to the prices that lenders can offer for second-home mortgages.
Your income, debts, credit rating, assets, and type of property all play an important role in getting a mortgage approved. It's important to calculate the mortgage payment yourself or make an estimate of the amount to avoid surprises in the future. Self-employed people have other options available when it comes to getting a mortgage loan, but lenders need to know that you are getting enough money to cover your mortgage payment as well as your other bills. The USDA almost always requires an appraisal and does not offer any appraisal exemption options for purchase loans.
If you're making a down payment of less than 20%, you'll need to pay for private mortgage insurance (PMI). The 20% figure comes from buyers trying to avoid this additional cost. Depending on your financial situation, there are seven documents you might need when applying for a mortgage loan. Lenders may require proof of cash reserves for up to six months depending on your credit rating, DTI ratio, and down payment.
If you're buying a two- to four-unit home, you'll need additional requirements. There is also an advance mortgage insurance premium (UFMIP) equivalent to 1.75% of the loan amount which is normally included in the mortgage.