Once the thought of owning a home enters your mind, you might find yourself rushing to the online home search engines to start shopping for your dream home. While that can be fun and exciting, there are a few things that you should do to prepare for actually going out, touring homes, and putting down an offer. While preparation can seem like a buzz kill, it can help you save time by focusing on homes you can afford and also help you put in a stronger offer when you’re ready to buy.
Trust me. These simple things will be a life saver for you once you get ready to buy your new home.
1. Check Your Savings Account
Two of the major benefits of a VA loan are that they do not require a down payment and they have no monthly mortgage insurance (PMI). However, you will most likely be responsible for loan costs that include closing fees from the lender (not the VA).
Making sure that you have cash set aside in savings can help with any closing costs, home improvements that you would like to make after closing, or any additional costs associated with homeownership.
2. Check Your Credit Reports
Many banks like USAA include free credit reporting or a form of it to their members. Knowing your credit and making sure that it’s credit is essential to qualifying for a mortgage and also getting the best rates available. When you pull your reports, look for issues that you might have forgotten about or didn’t even know about. It’s not uncommon to find a mistake, or a late credit card payment (yup, even one).
Credit reports will also explain how your report was scored. If you have high student loans or you always pay your credit cards, it will show you who that factored into your report.
3. Debts and Cashflow
Before you apply for a VA loan, you should know your monthly income and your current debts. During the qualification process, lenders will want to see proof that you have consistent income and that you don’t have large debts.
Also consider how you spend each month. Cutting back on nights out and cooking at home are great ways to start saving. Extra cash in your checking and savings accounts give lenders more confidence in you and your ability to pay for a mortgage.
4. Find Your Pay stubs, W-2s, tax returns, and your bank statements.
This is the very not fun, but very important part of preparing for a home loan. Lenders will ask for your W-2s, recent pay-stubs, your two most recent tax returns, and your bank statements.
You will want these documents printed and also retain digital copies as well (keep them secure). Some files you can send digitally, and some you will need to fax over to your lender (yes, seriously). Either way you slice it, this part of the process is everyone’s least favorite.
Depending on when you close on your home, you might need to pull updated documents.
5. Personal information
In addition to your personal financial information, you will also need to provide:
- Drivers license or government ID
- Previous addresses for the past 2 years
- Your social security numbers for all applicants on the loan
- The amount of school that you have completed
Of course, your other usual information like a current address and phone number will be needed as well.
6. Military information needed for your VA loan
Lenders will also need your military information to provide you with a VA loan. While technology has helped connect some lenders, it’s always better to have this information at hand.
- Have a copy of your DD214 if you are no longer in the military
- Complete a request for Certificate of Eligibility form 26-1880
- If you are active duty, have a statement of service from your commanding officer.
- You will need your Certificate of Eligibility, and thanks to technology, your lender should be able to help you retrieve this through their connection.
Having these documents at hand will help move the process along.
7. Find out how much home you can really afford
There can sometimes be a big difference between what you hope you can afford and what you can actually afford. This is especially true once you start the home shopping process and you begin to fall in love with certain homes. There’s nothing more crushing during he home purchase process than to shop for a home, fall in love with one, and find out that you cannot afford it.
Save yourself time and agony by knowing what you can afford before you go through a pre qualification process with a lender. You will need to take into account if you plan on making a down payment (not required with a VA loan), what monthly payment you think you’re comfortable with, what monthly utility bills will be (you can find estimates online), insurance costs, and if you have a safety net to cover your mortgage for a few months if you lost your job.