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Often it can take days, even weeks, to finalize all the necessary paperwork when applying for a mortgage loan, so you'll want to be prepared when it comes time to hand over the proper documentation to your loan officer.

Because preparing to buy a home can be very stressful, the last thing you want to be doing at the last minute is digging through piles of paperwork trying to locate last year's tax forms or your bank statements.

By spending a little time getting organized early in the process, you'll be ready to hit the ground running when it's time to apply for your loan.

One way to get organized is to start a home-buying file. Put papers, sales brochures and other related information in the file, including credit data, loan documents, real estate listings, inspection reports, area maps, and insurance information.

For the initial loan application process, lender Freddie Mac recommends gathering all your pay stubs for the past 30 days, W-2 forms for the past two years, information on your long-term debts (car loans, student loans, etc.), recent bank statements, tax returns for the past two years (especially if you're self-employed), proof of any supplemental income, records of any past derogatory credit history that you've paid off, and records of child support or alimony (either going in or coming out).

After you apply for your mortgage, Freddie Mac says your lender will schedule a loan interview with you and give you a list of the documentation you'll need to bring to the meeting.

Typically that documentation includes:

If applicable, also bring:

By knowing what documents you'll need and getting them together ahead of time, you'll likely be less stressed, you'll get through the loan application process more quickly, and you'll ultimately be one step closer to owning your house.


Written by Michele Dawson

10 questions to ask when applying for a mortgage
By Michael D. Larson • Bankrate.com

Knowing what to ask your lender when you're ready to apply for a mortgage will save you lots of money, stress and heartache. Get answers for each of these questions before signing your mortgage application.

1. What is the interest rate on this mortgage?
To know exactly what you'll be paying in interest over the life of the loan, you need to know the rate. This is the most important figure to obtain.

2. How many discount and origination points will I have to pay to get this rate and loan?
Lenders can charge points that lower your interest rate and points that provide no benefit whatsoever to you. Find out how many you'll be expected to pay for the loan and which kind of points they'll be.
 
3. What closing costs will be charged on this loan, and will you provide the "good faith estimate" of those costs up front?
Mortgages come with fees for various services that lenders and other parties involved in the transaction provide. You need to find out what you'll be charged as early as possible. Many experts say that you shouldn't use a lender or broker unless that person will provide a good faith estimate up front.

4. When can I lock in the interest rate, and what will it cost me to do so?
The interest rate of the mortgage you're applying for may go up or down between the time you apply and the time you close. That's why you may want to lock in the rate for a specified period, rather than let the rate float until the closing. Be sure to ask the lender if there is any fee for locking in the rate and whether you can also lock in points.

5. Is there a prepayment penalty on this loan?
The prepayment question is most important for loan shoppers with less-than-perfect credit because penalties abound in the subprime lending world. But even conventional borrowers should ask about any prepayment penalties that may apply. In some cases, they can get lower rates by accepting penalties on their loans.
Find out the duration of any penalty period and how the fee would be calculated. Some penalties are 1 percent of the loan amount; others are equal to six months worth of interest. Some apply only when you refinance or reduce the principal balance of the loan by more than 20 percent; others also will kick in if you sell the house.


Ready to find a mortgage? Check rates in your area.

6. What is the minimum down payment required for this loan?
Depending on the amount of your down payment and its relation to the price of your home, you might be charged different interest rates or quoted different loan terms. Loans made at high loan-to-value ratios can cost more than loans with larger down payments. Still, customers with good credit who are willing and able to pay private mortgage insurance (PMI) can get conventional loans with down payments that are much smaller than 20 percent.

7. What are the qualifying guidelines for this particular loan?
The qualifying guidelines can relate to your income, employment, assets, liabilities and credit history. Some first-time home buyer programs and government-sponsored loans have easier qualifying guidelines.

8. What documents do I have to provide?
You will need to provide proof of income and assets to get a mortgage loan. Find out what documents will be required in your particular situation by asking your lender.

9. How long will it take to process my application?
This varies from lender to lender. It often depends on how much business your particular lender is doing and how much business the market is seeing as a whole. When borrowers are knocking down doors all over town, underwriting departments back up, appraisals take longer to obtain and other bottlenecks develop. Get a realistic estimate, and use that to figure out how long a rate lock you'll need.

10. What might delay the approval of my loan?
If you provide the lender with complete, accurate information, everything should go smoothly. However, there could be a delay if the lender discovers credit problems, which is why it is critical to get your credit in order.

-- Updated: Nov. 13, 2002

Martha Alonso, Realtor, ABR. Accredited Buyer Representative

How mortgages work: Buying vs. renting

"Should we continue renting or go ahead and buy?" That's the question hundreds of thousands of Americans ask themselves every year.

It's not an easy one to answer. Emotions, family and personal reasons all come into play in any home-buying decision.

No one knows what the future holds for you, your family, your job or your finances. But we can help you understand what you're going to encounter when you embark on the sometimes-difficult journey toward the American Dream of owning a home.

Economic differences between renting and owning
If you're looking for the best return on your money, historically you're better off investing in the stock market than buying a house. Primary homes generally don't earn the investment return of financial instruments such as mutual funds. While the stock market's long-term average rate of return is in the range of 8 percent to 10 percent, housing has appreciated on average in the low- to mid-single digits for many years. That means you shouldn't buy solely to generate an investment gain.

On the other hand, Uncle Sam helps out by letting taxpayers deduct part of the mortgage interest and real estate taxes they pay each year. Borrowers get the benefit only if they pay enough in one year to exceed the standard deduction. But that usually happens, especially during the first few years of a mortgage when most of each payment goes toward interest rather than principal.

Continued below

By the numbers ...
Say someone with gross annual income of $50,000 bought a home using a 7 percent, 30-year mortgage of $150,000 on Jan. 1, 2002. The monthly payment would be $998, excluding taxes and insurance, and this year, that borrower would pay $9,585 in interest. If he didn't have the mortgage, he would take a $4,700 standard tax deduction on his 2002 tax return (assuming he was a single filer). But by itemizing his mortgage interest, he would have $4,885 more to subtract from his income.

Sunny side of homeownership
Owners enjoy other benefits, too. They build equity over time as home values rise and their mortgage balances shrink. They also don't have to worry about their housing costs shooting through the roof because mortgage lenders can't boost borrower rates and payments, unless those borrowers have adjustable-rate mortgages.

Cloudy side of homeownership
When something breaks at an apartment, it's the landlord's problem. When your name's on the deed, it's yours. Someone who throws every penny into a down payment just because homeownership sounds like a good idea is taking a big risk because there's no money left to fix leaky pipes or buy a new air conditioner.

Potential buyers may want to hold off for other reasons. Workers on shaky ground with their employers or those who don't think they'll be able to find jobs nearby if their firms go belly up might want to wait on getting mortgages. The same goes for people who plan on leaving a job soon. The monthly payment isn't the only obstacle for this kind of customer. Closing costs and other home-buying fees, as well as the commission that most owners end up paying to real estate agents when they sell their homes, add up. People who have to sell after living in one place for only a short time can end up in the hole on their investments.

Explore all the options
Some middle-ground approaches to homeownership blend elements of buying and renting. Some of the more popular loan types are seller financing, "lease with an option" and "contract for a deed" plans.

Seller financing
In seller financing, the buyer buys a $150,000 home by taking out an $80,000 bank loan, putting $10,000 down and getting the seller to "carry back" a $20,000 second mortgage. The buyer makes payments on the first loan to the bank and the second loan to the seller. That second mortgage from the seller usually comes with a higher rate, a shorter term and a potential balloon payment. Or, the seller can hold the entire mortgage and the buyer makes payments directly to the seller.

Pro: It reduces the cash needed to get into a home and could reduce closing costs.

Con: There are two monthly mortgages payments and the seller determines the interest rate for the second loan.

Lease with an option
In a lease with an option, the buyer leases a $125,000 home from the seller for 12 months at $1,200 a month, with $200 a month going into a savings account for a down payment and $1,000 going to the owner. Before moving in, the would-be buyer pays maybe 4 percent, or $5,000, of the purchase price upfront that goes toward the down payment. At the end of one year, the buyer gets the home with $7,400 down (his $5,000 upfront plus his savings account) and a regular loan from a bank that pays off the seller.

Pro: It's good for people who don't have a lot of cash, plus you get to "wear" the house before you buy it.

Con: The seller owns the home during the lease period.

Contract for a deed
In a contract for a deed, the buyer arranges a contract with the seller. The buyer makes payments to an escrow agent, who holds the deed to the property. After 180 months or some other term of payments to the escrow agent, the seller tells the escrow agent that payments have been made, and the escrow agent gives the buyer the deed. No financial institution is involved.

Pro: It reduces the closing costs.

Con: A buyer who defaults before fully owning a property can be treated like a tenant and evicted.

-- Updated: March 24, 2003

BACK: Intro

NEXT: How much house can you afford?

How mortgages work: Buying vs. renting

"Should we continue renting or go ahead and buy?" That's the question hundreds of thousands of Americans ask themselves every year.

It's not an easy one to answer. Emotions, family and personal reasons all come into play in any home-buying decision.

No one knows what the future holds for you, your family, your job or your finances. But we can help you understand what you're going to encounter when you embark on the sometimes-difficult journey toward the American Dream of owning a home.

Economic differences between renting and owning
If you're looking for the best return on your money, historically you're better off investing in the stock market than buying a house. Primary homes generally don't earn the investment return of financial instruments such as mutual funds. While the stock market's long-term average rate of return is in the range of 8 percent to 10 percent, housing has appreciated on average in the low- to mid-single digits for many years. That means you shouldn't buy solely to generate an investment gain.

On the other hand, Uncle Sam helps out by letting taxpayers deduct part of the mortgage interest and real estate taxes they pay each year. Borrowers get the benefit only if they pay enough in one year to exceed the standard deduction. But that usually happens, especially during the first few years of a mortgage when most of each payment goes toward interest rather than principal.

Continued below

By the numbers ...
Say someone with gross annual income of $50,000 bought a home using a 7 percent, 30-year mortgage of $150,000 on Jan. 1, 2002. The monthly payment would be $998, excluding taxes and insurance, and this year, that borrower would pay $9,585 in interest. If he didn't have the mortgage, he would take a $4,700 standard tax deduction on his 2002 tax return (assuming he was a single filer). But by itemizing his mortgage interest, he would have $4,885 more to subtract from his income.

Sunny side of homeownership
Owners enjoy other benefits, too. They build equity over time as home values rise and their mortgage balances shrink. They also don't have to worry about their housing costs shooting through the roof because mortgage lenders can't boost borrower rates and payments, unless those borrowers have adjustable-rate mortgages.

Cloudy side of homeownership
When something breaks at an apartment, it's the landlord's problem. When your name's on the deed, it's yours. Someone who throws every penny into a down payment just because homeownership sounds like a good idea is taking a big risk because there's no money left to fix leaky pipes or buy a new air conditioner.

Potential buyers may want to hold off for other reasons. Workers on shaky ground with their employers or those who don't think they'll be able to find jobs nearby if their firms go belly up might want to wait on getting mortgages. The same goes for people who plan on leaving a job soon. The monthly payment isn't the only obstacle for this kind of customer. Closing costs and other home-buying fees, as well as the commission that most owners end up paying to real estate agents when they sell their homes, add up. People who have to sell after living in one place for only a short time can end up in the hole on their investments.

Explore all the options
Some middle-ground approaches to homeownership blend elements of buying and renting. Some of the more popular loan types are seller financing, "lease with an option" and "contract for a deed" plans.

Seller financing
In seller financing, the buyer buys a $150,000 home by taking out an $80,000 bank loan, putting $10,000 down and getting the seller to "carry back" a $20,000 second mortgage. The buyer makes payments on the first loan to the bank and the second loan to the seller. That second mortgage from the seller usually comes with a higher rate, a shorter term and a potential balloon payment. Or, the seller can hold the entire mortgage and the buyer makes payments directly to the seller.

Pro: It reduces the cash needed to get into a home and could reduce closing costs.

Con: There are two monthly mortgages payments and the seller determines the interest rate for the second loan.

Lease with an option
In a lease with an option, the buyer leases a $125,000 home from the seller for 12 months at $1,200 a month, with $200 a month going into a savings account for a down payment and $1,000 going to the owner. Before moving in, the would-be buyer pays maybe 4 percent, or $5,000, of the purchase price upfront that goes toward the down payment. At the end of one year, the buyer gets the home with $7,400 down (his $5,000 upfront plus his savings account) and a regular loan from a bank that pays off the seller.

Pro: It's good for people who don't have a lot of cash, plus you get to "wear" the house before you buy it.

Con: The seller owns the home during the lease period.

Contract for a deed
In a contract for a deed, the buyer arranges a contract with the seller. The buyer makes payments to an escrow agent, who holds the deed to the property. After 180 months or some other term of payments to the escrow agent, the seller tells the escrow agent that payments have been made, and the escrow agent gives the buyer the deed. No financial institution is involved.

Pro: It reduces the closing costs.

Con: A buyer who defaults before fully owning a property can be treated like a tenant and evicted.

-- Updated: March 24, 2003

BACK: Intro

NEXT: How much house can you afford?