Complete Checklist of Documentation Investors Need for Approval

Many real estate investors will use a mortgage loan to pay for a large portion of an investment property’s sales price. While you may be familiar with the loan documentation that is required when you apply for an owner-occupied home, the documentation requirements vary when you apply for an investor loan. By learning more about the documents that your lender may require for your upcoming loan request, you can take steps now to prepare for your investor loan application.

Investors Asset & Income VerificationSome investors are turned off or even stressed out by the amount of documentation a lender requires. However, each document serves a very specific purpose and is essential for the underwriter to make an accurate, informed decision about your loan approval status. By providing all of the documentation requested quickly, you can promote the rapid processing and approval of your loan application. These are some of the more common types of documentation required by a lender.

Proof of Income

Just as the underwriter will review your personal income and overall debt-to-income ratio when you apply for a personal residence loan, the underwriter will walk through these same steps when you apply for an investment property loan.
  • Paystubs for Salaried Employees: Typically, the lender requires either a month’s worth of paystubs or the last two most recent paystubs to confirm your income level. A verification of employment may also be completed with you employer.
  • Federal Tax Returns With W-2s: You may need to provide your last two years of tax returns, including your W-2s if you are a wage earner. If you own a business, your business tax returns for the last two years may also be required. Contract workers may need to provide their 1099 forms for the last two years.
  • Other Related Income Documentation: All sources of regular income must be documented, so you may need to provide documentation showing your child support payments, alimony payments, rental income from investment properties, Social Security awards letter, pension documentation and more. Rental income from investment properties is most commonly verified by providing full copies of all of the leases on your existing investment properties.

Verification of Assets

It is likewise important that you document all of your assets. While you definitely need to document enough funds to pay the down payment and closing costs, the underwriter also wants to know how much additional liquidity you have available. This can be essential for your loan approval process if other factors indicate higher risk.
  • Financial Statements for All Accounts: For each bank account you own, the lender needs to see the last two to three months of bank statements. All pages of the statements should be provided. This includes checking and savings accounts, retirement accounts, stock or investment accounts and more.
  • Explanation and Documentation for Large Deposits: The lender will review your bank statements thoroughly. Any large deposits made into your account that are not generated by your regular income sources will need to be properly explained and documented.
  • Profit and Loss Statement for Self-Employed Applicants: If you own your own business, you will need to provide a current profit and loss statement, which details the business’s net worth. This is required even if your primary source of income is not generated by the business.
  • Business License: Some lenders may ask to see a copy of your active business license.
  • Life Insurance Documentation: If you have a cash value life insurance policy and indicated so on your loan application, some lenders may require you to provide proof of the current cash value amount of your policy. This is because the cash value amount is a true asset.

Other Documentation That May Be Required

The majority of the documentation that you need to provide to your lender for an investment loan application falls into the category of proof of income or proof of assets. However, other miscellaneous documentation may also be required by the lender:
  • Proof of Identity: You typically need to provide a copy of your government-issued photo ID as well as a copy of your Social Security card.
  • Proof of Insurance: Before closing, you will need to shop around and find coverage for the property. A full copy of the policy will be required, and the premium amount will be analyzed by the underwriter.
  • Divorce Decree: Commonly, if you have filed for divorce in the past, the lender need to review the divorce decree. This is regardless of how long it has been since the divorce occurred.
  • Property Ownership Documentation: Everything from a recent mortgage statement to the deed may be required for all properties you own. While this is not always required, you should be prepared to provide it upon request.
  • Credit Explanations: The lender will review your credit report and will ask for written explanations on all credit inquiries as well as all late payments or other derogatory items. Keep in mind that all late payments or outstanding judgments need to be paid in full before closing in most cases.
  • VA Certificate: If you are a veteran or an active military professional, you may be required to provide a copy of your DD214 form.
  • Sales Contract: When you are buying a property, the lender needs to review your fully executed sales contract. Proof of deposit for the earnest money may also be required.

As you can see, you may need to provide a lender with hundreds of pages worth of documentation when you apply for an investment property loan. It can take time to pull together all of the required documentation and send it to your loan processor. If you want to avoid delays with this process, it is wise to begin gathering together the required documentation now. You may ask your loan processor for a list of specific items that may be required for your unique loan application.

Questions to Ask Potential Mortgage Lenders

A home mortgage is a common way for individuals to afford home ownership. Depending where you live, a new home may cost several hundred thousand dollars or more, and many are simply unable to buy such an expensive item without financing or without considerable effort made at saving for decades of their lives. A home loan may stretch out payments on the house for 20 to 30 years in most cases, providing you with affordable monthly payments. However, before you can apply for a home loan, you must first find the right lender to work with. Some home buyers are inclined to decide which lender to use by shopping for the best interest rate, but this is not the only aspect of the screening process you should consider. Your home loan lender will impact your stress level when applying for home financing, your closing costs, your overall buying timeline and more. Consider asking a potential lender these questions as you make your final decision about who to work with.

MortgageHow Will the Loan Be Serviced?

It is common for lenders to sell their loans after closing to other parties, and it is also common for them to use a third party servicing company to handle collection of payments and other related tasks. While this is common practice, it can impact your loan payment experience in the years to come. If the loan representative states that another party will handle the loan payments, get the name of that company. Thoroughly research the company to ensure that they are known for providing great customer service to their customers.

What Are the Closing Costs?

Each lender has a different approach to establishing closing costs. Closing costs plus your down payment will equate to your total funds due at closing. You need to know that you have enough money available to pay the total funds due at closing. In addition, you may wish to compare different lenders’ closing costs to find the one that offers the best overall deal. In some cases, you can save thousands of dollars by shopping around and comparing closing costs before selecting a lender.

Should You Buy Down the Rate by Paying Points?

With a home loan, you are typically provided with an interest rate at par, and you may be given the ability to buy down the rate by paying points. A point equates to one percent of the loan amount. When you buy down the rate, you will have a lower monthly payment as well as less paid in interest over the life of the loan. Your lender ideally will ask you how long you intend to stay in the home when answering this question. Be wary of lenders who automatically recommend that you buy down the rate without asking about your long-term plans for home ownership. It is most effective to buy down the rate when you plan to be in the home for a long period of time.

Should You Pay Off Debts Before Applying?

As part of the pre-qualification process, your lender will calculate your debt-to-income ratio. If your ratio is very high, you may be requested to pay off some debts and close some accounts before or at closing. If your score is low or borderline, you may be advised to pay debts off several weeks or more before applying so that your credit rating may improve.

Are You a Strong Candidate for Loan Approval?Loan Approval

The last thing you want is to spend your time, energy and money going through the home buying process and loan application process only to find out at the very last minute that you do not qualify for the loan you need. You may lose some of your earnest money to the seller as well as money spent on the appraisal, property inspection and more. More than that, you may have become emotionally vested in buying your dream home, and it can be devastating to learn that you do not qualify for the loan you need to purchase it. Ask your lender up front if you are a strong candidate for loan approval. Pay attention to the key aspects of qualification that the lender states that you meet as well as areas that you may be borderline on.

While some home buyers may ask one mortgage lender these questions, it is best to ask multiple lenders these same questions. By doing so, you can more easily compare the answers to find the lender that seems to answer your questions more completely and honestly. Some may provide more elaborate and detailed explanations as a means to help you make a better decision, to guide you through the process and more. It is wise to speak with multiple lenders before you make your decision about which lender you want to move forward with.

7 Tips for Home Buyers

Purchasing a home can be exciting and nerve-racking at the same time. The experience is even more challenging for the fist-time home buyers because they do not know what to expect. Though the learning curve is steep, you can always find your way out with a little extra homework. In this post, we are going to help you demystify home buying process with seven well-researched tips.

Consider Your Needs

A perfect house should suit all your needs. Remember finding a house is more than simply identifying a place to lay your head. From shopping to leisure, it must cover all the aspects of your life. Find a house that can match your lifestyle. If you like to move around, go for a house located in a place that has a less frustrating gridlock whenever you commute. Determine whether there are occasional traffic snarl-ups that can ruin your plans and moods. Check whether the house is located in a place that has enough essentials such as groceries and household items. Approximate how close the local groceries are, and evaluate how they will impact your lifestyle. Also, determine whether the location and layout of the house will affect the way you spend your leisure time. If you enjoy a nightlife, ensure there are local pubs and nightclubs around.

Check Your FinancialsFinances

You need to check your finances before you buy a home to determine whether you can afford it. There are a lot of options available. For example, there are bank loans specially designed for real estate. One can also use cash or go for a mortgage. To qualify for a bank loan or a mortgage, you must do some background checks and ensure everything is in order. Your credit score is one of the most important elements you must take into consideration. There are different score standards that determine what you need for a particular type of loan or mortgage in a credit report. Look for mistakes and unpaid amounts in the credit score and correct them. You can also do a comprehensive audit of your assets and liabilities to determine how much you owe, or whether there are certain amounts of money left for additional use.

Determine How Much Mortgage You Can Get

Get a rough idea of how much mortgage a lender is willing to give you based on your credit history and monthly income. You may think that you qualify for a mortgage worth $500,000 only for a creditor to consider otherwise. Most real estate agents do not like to spend their energy on those who have no idea of how much they want to use in the process. Include your personal finances such as reports on bill payments and calculate debt-to-income ratio. Clearly indicate your monthly expenses in the report to enable the lender to calculate your mortgage based on the current facts. Also, get a pre-approval for the loan before you place an offer on a house. In many cases, sellers require buyers to place an offer based on an authorized pre-approval document.

Do Not Be Afraid of Bidding

You need develop great bidding skills to protect your financial interest when buying a home. Most home buyers chose to ignore this important aspect for one reason or the other. Bidding should cover two important elements. First, it should be based on the amount of money you have so that you don’t outbid yourself. Second, it must take into consideration your view as to whether the house is worth the price quoted. Your opening bid should be reasonable to prevent the seller from walking out the first time. Consider what other houses in the same category go for when preparing an opening bid. A good bid should cover the average price of the house per square foot.

Visit the Neighborhood

Stalk the neighborhood to get an overview of where you will be staying. Drop by in the morning or at night to see what is happening there. Most people find themselves in bad situations after they settle in a perfect house only to realize that the neighborhood is not good for them. The neighborhood must have enough security and amenities such as schools and hospitals. However, most houses in good neighborhoods cost up to 20 percent more than those located in bad areas.

Do a Thorough Home Inspection

A thorough home inspection helps you to see the new house for what it is. With inspection, you unearth hidden problems that the seller is not willing to tell you. Such problems may range from plumbing malfunctions to electrical issues. As a result, you can avoid potentially harmful and costly problems associated with new homes. The inspection will also enhance your negotiating power. By uncovering the hidden faults, you can ask the seller to close the deal at a lesser amount to cover the repair costs. In addition, a great inspection can help you prepare for the future since you get a lot of information about the house in the process.

patriciawagnerHire a Professional Real Estate Agent

You need to hire a licensed real estate agent to guide you through the buying process. The agent will negotiate complex transactions with potential pitfalls on your behalf. Since they have large connections, real estate agents can solve any problem that may arise. He or she will help you get good loan officers and hire a home inspector if you cannot find one by yourself. Agents can also apply their knowledge and experience to negotiate with the seller for a lower price.

The tips discussed above can make a big difference for most home buyers. By following them, you will get a house that suits your needs while at the same time getting the real value for your money.