What Documents are required for A Loan Approval?
Here is a standard list of documents we’ll need upon submission of your loan application to start the loan process. The list varies by customer because not every item applies to every borrower:
If you are Retired:
If you are Self-employed:
- Signed Loan Disclosures - The disclosures will be generated by our team and emailed out within 2 or 3 days of the loan application submission. A few forms require physical ink signatures to sign and return via fax, scan or mail. And of course if you prefer to sign hard copies we are happy to send the entire package out in the mail.
- 30 Days of Paystubs for Each Job - (typically 2 paystubs unless paid monthly last 2 months or last 4 paystubs if paid weekly)
- 60 Days of All Bank Statements- All pages of your bank statement, even if they are blank. A simple screen print will not be sufficient. Any deposits or transfers showing up might require explanation or further documentation.
- 2 Years of W2s for Each Job
- 2 Years of Tax Returns - We’ll need all pages of the federal income taxes and all schedules. (We don’t need the state part but can be sent if it’s easier to include)
- Identification - A copy of your Drivers License, Passport and/or Green card (front and back), Acceptable visas.
- Home Insurance Agent Contact Info - We’ll need a quote for the insurance cost of your new purchase. We like to receive this as early in the process as possible so we can update your loan application and provide accurate figures. This also ensures no delays with your closing.
- Earnest money (EMD) deposit – We need copies of your bank statements showing these fund have cleared your bank account.
- Gift Form - If receiving a gift we’ll send you a form to have filled out by the donor which states the origin of the gift, who it’s from, the relationship and must be signed by all parties. We’ll also need a copy of the check provided and proof of deposit. In some cases we’ll need to see bank statements from the donor’s bank account showing the money exiting the account.
If you are Retired:
- Social Security Award Letter - Document from social security that explains what your monthly payment will be.
- 2 years of 1099s - Some retirement incomes provide 1099s to borrowers.
- Pension Statement - Pension documentation showing how much you receive monthly or annually
- Annuity Statement - Annuity documentation showing how much you receive monthly or annually
If you are Self-employed:
- 2 Years of Business Returns - Self-employed borrower depending on the formation of business we could need business returns (especially if you have 25% ownership of a business or greater).
- YTD Profit and Loss and Balance Sheet for Business - Underwriter will want to see what the projected income for the future earnings of the business are when tax returns are not yet available to make sure they are in line with prior years. Preferred to be completed by a CPA but sometimes can be prepared by an owner of the business as well.
- 90 Days of All Business Bank Statements - All pages of your business bank statement, even if they are blank.
What Can Impact my Interest Rate?
Why doesn’t everybody get the same rate? Fair question. Rates are based on risk, and there are many different factors that go into how the bank assesses risk. Below is a list of items that can have an impact on your rate:
Credit Score
Credit can have a dramatic affect on your rate. In most cases 740 will get you the best rate possible for your situation but in a few instances a 780 and then 800 will get you an even better rate. Dropping below 740 the rates will change at 720, then 700, and 680 and so-on. Some programs offer the same rate regardless of credit but not normally.
Down Payment
This has a lot to do with risk since the more you put down the less risk to the bank. Generally the greater the down payment the better the rate might be. First time buyer programs offer borrowers who qualify the ability to get same or close to what a 20% down buyer might be able to get (as long as you qualify). On jumbo financing there might be a rate improvement on incremental tiers such as a 20%, 30% and 40% down payment.
Property Type
Some property types can be seen as riskier than others. Single family is generally the lowest rate while a condo can sometimes be an add-on to rate. Typically 25% down on a condo will generate the same rate as 20% down on a single family (but not always). Multi-families can have a higher rate in some cases depending on program as well.
Loan Amount
There are various terms and levels of loan size from conforming to jumbo to “agency or high balance” which exist in high cost states/counties. As a result a $726,200 loan might be a better or worse rate than a $730k loan or a $900k loan. In the past jumbo loans always had substantially higher rates but this is no longer the case and a lot of times a jumbo loan might now be the lowest rate available.
Loan Product
30 Year fixed is the industry standard but some people are interested in 20 or 15 or 10 year fixed. The lower the fixed portion the lower the rate so a 10 year fixed is lower than a 15 or 20. Also some people look to ARMS or adjustable rate mortgages to secure a lower rate for a shorter fixed time period. A 3/1 ARM or 5/1 ARM means the rate is fixed for 3 or 5 years and then can adjust based on the market. 7/1 arm or 10/1 ARM are longer fixed periods in exchange for a higher rate but still lower than a 30 year fixed because the buyer is taking on more risk by not having the loan fixed for the full 30 years.
Loan Programs
Certain first time buyer programs might have extremely low rates as a special incentive for qualifying buyers. Some Government-backed loans such as FHA or VA might have the lowest rates out of the bunch but also sometimes have other costs and fees that need to be evaluated. Lowest rate doesn’t necessarily always mean best deal.
Credit Score
Credit can have a dramatic affect on your rate. In most cases 740 will get you the best rate possible for your situation but in a few instances a 780 and then 800 will get you an even better rate. Dropping below 740 the rates will change at 720, then 700, and 680 and so-on. Some programs offer the same rate regardless of credit but not normally.
Down Payment
This has a lot to do with risk since the more you put down the less risk to the bank. Generally the greater the down payment the better the rate might be. First time buyer programs offer borrowers who qualify the ability to get same or close to what a 20% down buyer might be able to get (as long as you qualify). On jumbo financing there might be a rate improvement on incremental tiers such as a 20%, 30% and 40% down payment.
Property Type
Some property types can be seen as riskier than others. Single family is generally the lowest rate while a condo can sometimes be an add-on to rate. Typically 25% down on a condo will generate the same rate as 20% down on a single family (but not always). Multi-families can have a higher rate in some cases depending on program as well.
Loan Amount
There are various terms and levels of loan size from conforming to jumbo to “agency or high balance” which exist in high cost states/counties. As a result a $726,200 loan might be a better or worse rate than a $730k loan or a $900k loan. In the past jumbo loans always had substantially higher rates but this is no longer the case and a lot of times a jumbo loan might now be the lowest rate available.
Loan Product
30 Year fixed is the industry standard but some people are interested in 20 or 15 or 10 year fixed. The lower the fixed portion the lower the rate so a 10 year fixed is lower than a 15 or 20. Also some people look to ARMS or adjustable rate mortgages to secure a lower rate for a shorter fixed time period. A 3/1 ARM or 5/1 ARM means the rate is fixed for 3 or 5 years and then can adjust based on the market. 7/1 arm or 10/1 ARM are longer fixed periods in exchange for a higher rate but still lower than a 30 year fixed because the buyer is taking on more risk by not having the loan fixed for the full 30 years.
Loan Programs
Certain first time buyer programs might have extremely low rates as a special incentive for qualifying buyers. Some Government-backed loans such as FHA or VA might have the lowest rates out of the bunch but also sometimes have other costs and fees that need to be evaluated. Lowest rate doesn’t necessarily always mean best deal.
What are Mortgage Points and are they bad?
The purpose of paying a point(s) is to obtain a lower interest rate in exchange for paying a one-time lump sum at closing which is officially prepaying interest on the loan. Points are typically charged in eighths (.125%) and are based on the loan amount and not the purchase price. Points can be a benefit but we’ll want to confirm the ‘rate of return’ on paying them so we know exactly their impact on your money. Also, some loan programs are currently structured that require some points (IE: Investment properties and 2nd homes) as the current loan market doesn’t offer those with little or no cost.
How Much Money DO I need at Closing?
The total funds due at the closing are combination of 3 main items:
The only other costs that would exist are an inspection if you choose to get one once the contract is accepted; plus any repairs or other agreed to items as part of your contract.
- Closing Costs: these are the costs to obtain the loan and are broken down in 2 main portions:
a. Hard Costs: These are the 1x fees to get the loan and include items like: Appraisal; credit report, title work, recording fees, attorney/escrow fees; transfer taxes; etc.
b. Soft Costs: These are the recurring fees for new loan and include your property taxes and home owners insurance. If you escrow for these items to be paid with your mortgage payment; we’ll be required to set them up at the time of closing and then when the renewals are due (typically semi annually or annually) they send the bill to us for them to be paid (as they are part of your mortgage payment); - Down Payment: This is the amount due for your new loan approval and can range to 0% down up to an amount you agreed to pay for
- Miscellaneous: this would be for any HOA dues or other agreed to items with your transaction.
The only other costs that would exist are an inspection if you choose to get one once the contract is accepted; plus any repairs or other agreed to items as part of your contract.
CAN MY MORTGAGE PAYMENT CHANGE?
Yes. There are a few reasons a mortgage payment can increase (or decrease).
Loan Product - If you chose to do an ARM (Adjustable rate mortgage) the rate is only fixed for the set term such as 5, 7 or 10 years and after that period the rate will adjust based on the index and margin. The margin is a set number when you lock in the rate and the index is tied to some trackable financial benchmark such as the 1 year LIBOR rate. On a regular fixed rate loan – like a 30 year fixed - the mortgage payment itself should not ever change.
Property Taxes - The taxes are usually part of your monthly payment and they can increase annually depending on the city or town. When the taxes go up – the bank does an annual escrow review and look to adjust the monthly amount based on the new expenses. They will request a one-time payment to cover the difference or offer to increase your monthly payment to make up the now deficit. You will get a letter in the mail explaining the reason for the deficit and the option to send in a one time payment or a monthly payment increase.
Home Insurance - Similar to the taxes the home insurance can increase (or decrease) after the first year and the bank will need to adjust the monthly payments to account for the change. You are always able to switch home insurance companies if you are unhappy with the adjustments – you just need to let the bank know who the new company is and send a copy of the new premium so they know what to charge monthly.
We are always happy to review your recent mortgage and escrow statements with you no matter who is servicing your loan.
Loan Product - If you chose to do an ARM (Adjustable rate mortgage) the rate is only fixed for the set term such as 5, 7 or 10 years and after that period the rate will adjust based on the index and margin. The margin is a set number when you lock in the rate and the index is tied to some trackable financial benchmark such as the 1 year LIBOR rate. On a regular fixed rate loan – like a 30 year fixed - the mortgage payment itself should not ever change.
Property Taxes - The taxes are usually part of your monthly payment and they can increase annually depending on the city or town. When the taxes go up – the bank does an annual escrow review and look to adjust the monthly amount based on the new expenses. They will request a one-time payment to cover the difference or offer to increase your monthly payment to make up the now deficit. You will get a letter in the mail explaining the reason for the deficit and the option to send in a one time payment or a monthly payment increase.
Home Insurance - Similar to the taxes the home insurance can increase (or decrease) after the first year and the bank will need to adjust the monthly payments to account for the change. You are always able to switch home insurance companies if you are unhappy with the adjustments – you just need to let the bank know who the new company is and send a copy of the new premium so they know what to charge monthly.
We are always happy to review your recent mortgage and escrow statements with you no matter who is servicing your loan.
What is PMI? When Do I Have To Pay It?
PMI is short for Private mortgage insurance. Private mortgage insurance is an insurance the bank requires some buyers to pay as a penalty for not putting 20% down payment. Essentially the bank takes on more risk when the buyer doesn’t have enough “skin in the game” for which 20% happens to be the fine line. When you put down 0, 3%, 5%, 10% or even 15% the bank wants added protection that you won’t default on the loan. This is accomplished by having a 3rd party insure the loan so that the bank won’t suffer the loss of the loan. The insurance is usually billed monthly and added onto your mortgage payment though it can be paid upfront at once or it can also be factored into the rate as an alternative. Some first time buyer programs do not require PMI to be paid as a benefit to the program. Other programs or investors offer options where the rate is essentially baked into the deal and so the buyer doesn’t see the PMI but the rate is increased to cover.
PMI cost will vary for each scenario. There are several PMI providers and they all have different costs and pricing structures. In addition there are different factors that change the PMI costs for each provider. The main items are: down payment amount (LTV), debt ratio, credit score and loan amount. The PMI is quoted as a % - like .50% of the loan amount. So if your loan amount was $300,000 and the PMI quote was .50% that means you are paying $1500 a year or $125 per month. The better the credit score typically the lower the PMI and the more down payment typically the lower the pmi (up until 20% where you wouldn’t have to pay PMI). But 3% down would have a higher PMI than 5% down, and 10% or 15% down would be the lowest PMI factor. Credit scores of 780, or 760 or 740 will be a lower PMI factor than a 720 or 700 or lower.
PMI does go away in most cases (not for FHA loans) and here are the situations in which PMI can be removed generally speaking – this does not apply to every deal and you need to confirm on a case-by-case.
PMI cost will vary for each scenario. There are several PMI providers and they all have different costs and pricing structures. In addition there are different factors that change the PMI costs for each provider. The main items are: down payment amount (LTV), debt ratio, credit score and loan amount. The PMI is quoted as a % - like .50% of the loan amount. So if your loan amount was $300,000 and the PMI quote was .50% that means you are paying $1500 a year or $125 per month. The better the credit score typically the lower the PMI and the more down payment typically the lower the pmi (up until 20% where you wouldn’t have to pay PMI). But 3% down would have a higher PMI than 5% down, and 10% or 15% down would be the lowest PMI factor. Credit scores of 780, or 760 or 740 will be a lower PMI factor than a 720 or 700 or lower.
PMI does go away in most cases (not for FHA loans) and here are the situations in which PMI can be removed generally speaking – this does not apply to every deal and you need to confirm on a case-by-case.
- Automatic termination once the loan reaches 78% LTV of original value
- Customer can request PMI cancellation once the loan reaches 80% LTV of original value
- Customer can request PMI cancellation based on updated value (new appraisal)
- 80% LTV if the loan history is greater than 5 years
- 75% LTV if the loan history is between 2-5 years
- 75% LTV if the loan history is less than 2 years and the increase in value is a result of improvements to the property and the borrower is the original
How Does my credit impact my loan?
Credit is a crucial part of the loan approval process and can greatly affect your loan approval, rate, and more. There is a lot to know about credit and the more knowledge you have on the topic the more you can help yourself when it comes to getting a loan.
What is a good credit score?
Credit scores range from 350-850. First Western Trust requires a 620 to approve a loan for a Conventional Loan and a 580 for VA/FHA; 740 is considered in the top tier. In some cases certain products might get a better rate for 780 or even 800 scores considered “ultra-premium” and could result in a .125% better rate than a 740 but generally speaking 740 is the top tier.
How does credit affect my loan?
Credit is a key item in getting a home loan for several reasons. Our automated loan approval systems which are run when a loan is submitted and again during underwriting use credit to determine if there should be an approval. That’s an important component in the approval process for your loan. You need a 580 credit score to be able to apply (at First Western Trust) as a minimum score for an FHA/VA loan; or 620 for a Conventional loan. Your score will also impact your rate and your PMI (private mortgage insurance) which is an added cost for buyers with less than 20% down payment. The credit score can have a drastic effect on these items – for example a 660 credit score buyer might get a rate that is .75% higher than someone with a 740 credit score which can account for several hundred dollars per month increase. So credit can affect not only your ability to get approved but also the rate, and payment for which you are approved.
I know my credit score, right?
Not so fast. Many people will tell me during the pre-approval process they know their credit scores because they check credit karma or their credit card company tells them the score or they just bought a car. There are SEVERAL credit scoring models and all have different scoring systems as most base it on the type of debt (IE: Mortgage, Auto, Credit Card, etc). Credit Karma, your local car dealer, your credit card free credit report analyzer are all different scores than what banks or mortgage companies use. Sometimes our scores are higher and sometimes our scores a lower – and it can be drastic. I’ve had a 30 or 40 point increase or decrease from what customers have told me they just obtained.
How many scores are there?
For our purposes there are 3 scores we care about. Experian, Equifax, and Transunion. And we will use the middle of the 3 for each borrower as our determining score for rates, pmi, and decisioning. If there are multiple borrowers on the loan – we use the LOWER of the middle scores for all borrowers. So if one borrower has a 740, and another borrower has a 660, we will use the 660 as the mid score for the loan.
Can my credit be fixed?
Usually – yes. Credit scoring is a system that can be manipulated and is a constantly changing system. When we pull credit for a prospective borrower – our credit model provides a how-to or what-if analyzer to tell us if there is an opportunity to boost our customer’s scores. It’ll give very specific instructions saying something like “pay down borrowers bank of America credit card by $635 and rescore for an 18 point increase” and if the steps are followed closely we are able to get a new score within 5-7 days typically which can then be used for an improved rate or reduced mortgage insurance cost. IF the score is far below the 620 minimum, I’ll typically refer customers to a credit repair company I’ve used for the past 10 years who have helped getting borrowers from the 4’s and 5’s into the 7’s in a reasonable amount of time for a reasonable fee.
I don’t have credit – can I get a loan?
This is tricky. Credit history is a key part of the loan approval process. There are a FEW programs we can possibly do with no credit history but it is very limiting. If you currently have no credit – it behooves you to get a few credit cards as quickly as possible and use them lightly making sure to pay them down every month. If you are having trouble getting credit because you have no history there are certain cards that are made for people with no credit history- just google “credit cards for people with no credit history”.
Does lower credit always mean higher monthly payment?
For the most part – yes. The rate will reflect the lower score compared to someone with top credit. There are however first time homebuyer programs that have no adjustments for anyone with a score as low as 680 compared to a 740. So those programs are the preferred choice – for first time buyers – if your score is at least 680. In these cases you will get the same rate as a top tier credit buyer. Additionally government loans such as FHA and VA for the most part do not have adjustments to rate for lower scores (though in some cases they do).
Does pulling my credit hurt my score?
Yes and no. There are hard credit inquiries and soft credit inquiries. Hard credit will ding your score – a little – and is usually required for a pre-approval. That allows us to get your scores and see all the debts you have. A soft inquiry on the other hand usually happens right before closing as a comparison tool to make sure you haven’t obtained any new debt that we don’t know about right before closing. A hard inquiry can ding your score slightly but that is rare if you are shopping a mortgage loan as they are coded a specific way to remove this impact. Also – the scoring systems have factored in an allowance for credit pulls realizing if someone pulls the credit it’s likely they might be shopping for products and you are allowed a 45 day window of pulls without getting hit each time.
What is a good credit score?
Credit scores range from 350-850. First Western Trust requires a 620 to approve a loan for a Conventional Loan and a 580 for VA/FHA; 740 is considered in the top tier. In some cases certain products might get a better rate for 780 or even 800 scores considered “ultra-premium” and could result in a .125% better rate than a 740 but generally speaking 740 is the top tier.
How does credit affect my loan?
Credit is a key item in getting a home loan for several reasons. Our automated loan approval systems which are run when a loan is submitted and again during underwriting use credit to determine if there should be an approval. That’s an important component in the approval process for your loan. You need a 580 credit score to be able to apply (at First Western Trust) as a minimum score for an FHA/VA loan; or 620 for a Conventional loan. Your score will also impact your rate and your PMI (private mortgage insurance) which is an added cost for buyers with less than 20% down payment. The credit score can have a drastic effect on these items – for example a 660 credit score buyer might get a rate that is .75% higher than someone with a 740 credit score which can account for several hundred dollars per month increase. So credit can affect not only your ability to get approved but also the rate, and payment for which you are approved.
I know my credit score, right?
Not so fast. Many people will tell me during the pre-approval process they know their credit scores because they check credit karma or their credit card company tells them the score or they just bought a car. There are SEVERAL credit scoring models and all have different scoring systems as most base it on the type of debt (IE: Mortgage, Auto, Credit Card, etc). Credit Karma, your local car dealer, your credit card free credit report analyzer are all different scores than what banks or mortgage companies use. Sometimes our scores are higher and sometimes our scores a lower – and it can be drastic. I’ve had a 30 or 40 point increase or decrease from what customers have told me they just obtained.
How many scores are there?
For our purposes there are 3 scores we care about. Experian, Equifax, and Transunion. And we will use the middle of the 3 for each borrower as our determining score for rates, pmi, and decisioning. If there are multiple borrowers on the loan – we use the LOWER of the middle scores for all borrowers. So if one borrower has a 740, and another borrower has a 660, we will use the 660 as the mid score for the loan.
Can my credit be fixed?
Usually – yes. Credit scoring is a system that can be manipulated and is a constantly changing system. When we pull credit for a prospective borrower – our credit model provides a how-to or what-if analyzer to tell us if there is an opportunity to boost our customer’s scores. It’ll give very specific instructions saying something like “pay down borrowers bank of America credit card by $635 and rescore for an 18 point increase” and if the steps are followed closely we are able to get a new score within 5-7 days typically which can then be used for an improved rate or reduced mortgage insurance cost. IF the score is far below the 620 minimum, I’ll typically refer customers to a credit repair company I’ve used for the past 10 years who have helped getting borrowers from the 4’s and 5’s into the 7’s in a reasonable amount of time for a reasonable fee.
I don’t have credit – can I get a loan?
This is tricky. Credit history is a key part of the loan approval process. There are a FEW programs we can possibly do with no credit history but it is very limiting. If you currently have no credit – it behooves you to get a few credit cards as quickly as possible and use them lightly making sure to pay them down every month. If you are having trouble getting credit because you have no history there are certain cards that are made for people with no credit history- just google “credit cards for people with no credit history”.
Does lower credit always mean higher monthly payment?
For the most part – yes. The rate will reflect the lower score compared to someone with top credit. There are however first time homebuyer programs that have no adjustments for anyone with a score as low as 680 compared to a 740. So those programs are the preferred choice – for first time buyers – if your score is at least 680. In these cases you will get the same rate as a top tier credit buyer. Additionally government loans such as FHA and VA for the most part do not have adjustments to rate for lower scores (though in some cases they do).
Does pulling my credit hurt my score?
Yes and no. There are hard credit inquiries and soft credit inquiries. Hard credit will ding your score – a little – and is usually required for a pre-approval. That allows us to get your scores and see all the debts you have. A soft inquiry on the other hand usually happens right before closing as a comparison tool to make sure you haven’t obtained any new debt that we don’t know about right before closing. A hard inquiry can ding your score slightly but that is rare if you are shopping a mortgage loan as they are coded a specific way to remove this impact. Also – the scoring systems have factored in an allowance for credit pulls realizing if someone pulls the credit it’s likely they might be shopping for products and you are allowed a 45 day window of pulls without getting hit each time.
Down Payment Money Coming From Someone Else?
Many buyers are lucky enough to receive money from family or friends when they are buying a home. This is referred to as “gifts” and it’s very common and typically easy to document. It is important to let the loan officer know upfront if you will be receiving money because documenting assets must be done a certain way and there are certain requirements. In most cases we will need a copy of the check from the donor and your bank statement showing that check clearing along with a “gift letter” which is a bank form we will send to you for the gift donor to fill out and sign. The form provides information such as: how much money is being gifted, who it’s from and where the money specifically came from (bank account). Some loan programs will require the gift donor’s bank statement showing the money coming out of their account. If the money is given as a wire or transfer from another bank account – we also might need to see the gift donors bank statement. So planning ahead is helpful because we can try and make this process easier for you and the gift donors.
Many people try to avoid “gifting” because they think that means tax implications. The bank will require you to fill out a gift form but we are not sending a tax document to the IRS with this information. This is on the gift donor to figure out the implications but I have found a link that can give you some insight into the question from SmartAsset.com.
According to the article, a person is allowed to gift $15,000 per year tax free. However, there is a lifetime gift allowance that allows gifting to each person up to $11.18 million dollars (federal exemption). The article gives a bit more detail and mentions that this might differ in certain States but for the most part I think the gift donor as well as the recipient are safe from paying taxes generally speaking (please consult a CPA or tax preparer to confirm this as I am not licensed to be providing guidance on this).
Many people try to avoid “gifting” because they think that means tax implications. The bank will require you to fill out a gift form but we are not sending a tax document to the IRS with this information. This is on the gift donor to figure out the implications but I have found a link that can give you some insight into the question from SmartAsset.com.
According to the article, a person is allowed to gift $15,000 per year tax free. However, there is a lifetime gift allowance that allows gifting to each person up to $11.18 million dollars (federal exemption). The article gives a bit more detail and mentions that this might differ in certain States but for the most part I think the gift donor as well as the recipient are safe from paying taxes generally speaking (please consult a CPA or tax preparer to confirm this as I am not licensed to be providing guidance on this).
