Lender Checklist: What You Need for a Mortgage

W-2 forms — or business tax return forms if you're self-employed — for the last two or three years for every person signing the loan.

Copies of at least one pay stub for each person signing the loan.

Account numbers of all your credit cards and the amounts for any outstanding balances.

Copies of 2 to 4 months of bank or credit union statements for both checking and savings accounts.

Lender, loan number, and amount owed on other installment loans, such as student and car loans.

Addresses where you have lived for the last five to seven years, with names of landlords if appropriate.

Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, such as a boat, RV, or stocks or bonds not held in a brokerage account.

Copies of your most recent 401(k) or other retirement account statement.

Documentation to verify additional income, such as child support or a pension.

Copies of personal tax forms for the last two to three years.

Borrowing from a 401(k) to Make a Down Payment

Make sure you understand the rules and risks before tapping your retirement savings to pay for a home.

It looks like I’m going to need to take money from my retirement savings to make a down payment on a house. Which is better to tap for a down payment -- a 401(k), a Roth IRA or a Borrowing from a 401(k) to Make a Down Payment.

Your best bet is to tap your 401(k). You can generally borrow up to half of your balance, up to a maximum of $50,000, from the account at any age and for any reason without tax or penalty. The interest you pay on the loan (generally the prime rate plus one or two percentage points) goes back into your account.

Loans from 401(k)s usually must be paid back in five years, but your employer may give you up to 15 years to repay a 401(k) loan if you are borrowing the money to buy a home. Your employer will usually start deducting the monthly loan payments from your paycheck right away.

There is one major drawback to borrowing from a 401(k): If you lose or leave your job, you generally have just 60 to 90 days to pay back the loan or it will be considered a distribution -- and subject to taxes, plus a 10% early-withdrawal penalty if you’re under age 55 when you leave your job.

Taking the money from a Roth for a down payment is your next-best choice. You can’t borrow from the account and return the money to it, as with a 401(k), but you can withdraw up to the amount of your contributions tax-free and penalty-free for any reason and at any age. If you withdraw earnings from a Roth before age 59½, you generally must pay taxes and a 10% penalty; after age 59½, you can withdraw earnings penalty- and tax-free (as long as you have had a Roth IRA for at least five years). But if you’re using the money to purchase your first home, you (and your spouse) can each withdraw up to $10,000 in earnings from your Roth IRAs without the 10% early-withdrawal penalty even if you’re under age 59½. You’ll also avoid a tax bill on that withdrawal if you’ve had a Roth IRA for at least a five-year period. If you don’t meet the five-year test, you’ll owe taxes on that $10,000, but not the 10% penalty.

First-home rules are least advantageous for traditional IRAs. You and your spouse can each take up to $10,000 from your traditional IRAs for a first-home purchase without the 10% early-withdrawal penalty, but the withdrawal is still taxable.

You don’t literally have to be a first-time homebuyer to qualify for the first-time-home buyer exceptions, but you can’t have owned a home in the previous two years. If you already own a home, you can still take the 401(k) loan or withdraw your contributions to a Roth IRA without penalties or taxes, but you won’t qualify for the $10,000 penalty-free IRA withdrawals.

For more information about IRA withdrawal rules, see IRS Publication 590, Individual Retirement Arrangements (NOTE: IRS rules change, please seek the latest rules fro your tax adviser and/or attorney)

Common First-Time Home Buyer Mistakes

1. They don’t ask enough questions of their lender and end up missing out on the best deal.
2. They don’t act quickly enough to make a decision and someone else buys the house.
3. They don’t find the right agent who’s willing to help them through the home buying process.
4. They don’t do enough to make their offer look appealing to a seller.
5. They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.

How Big of a Mortgage Can I Afford?

Not only does owning a home give you a haven for yourself and your family, it also makes great financial sense because of the tax benefits — which you can’t take advantage of when paying rent.

The following calculation assumes a 28 percent income tax bracket. If your bracket is higher, your savings will be, too. Based on your current rent, use this calculation to figure out how much mortgage you can afford.

Rent: _________________________

Multiplier: x 1.32

Mortgage payment: _________________________

Because of tax deductions, you can make a mortgage payment — including taxes and insurance — that is approximately one-third larger than your current rent payment and end up with the same amount of income.

For more help, use Fannie Mae’s online mortgage calculators. 

Top 10 Do’s and Don’ts When You’re Applying For a Loan. (Mortgage)

Fives do’s: 
1. Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. Every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine how good a loan you get — if you get one at all.
2. If something has to be missed, miss the credit card payment first, followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. That’s because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign.
3. Consider paying off more debt and putting down a smaller amount at closing. The move leaves borrowers with larger mortgages, but it will allow them to replace non tax-deductible, high-interest rate debt with lower-rate mortgage debt that features deductible interest.
4. Get the mortgage first if multiple financial obligations are going to pop up in the near future. Numerous credit inquiries, such as new applications for credit cards, can hurt a borrower’s credit score, especially if they’re filed in the months prior to the home loan review process.
5. Increase the size of the down payment you’re able to make by saving as much as possible, as often as possible. Evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions or other financial incentives to save.

Five don’ts:
1. Don’t make any big purchases over the next couple of months. It makes less money available for the down payment and it might require you to get yet another loan.
2. Lenders consider what’s known in the industry as “payment shock” when approving loans. Somebody who goes from a relatively small monthly housing payment to a huge one either won’t qualify for a mortgage or will end up having to cover too much loan with too little money.
3. Don’t just get pre-qualified for a mortgage, get pre-approved. Home buyers must allow their lenders to pull credit reports, check debt-to-income ratios and perform other underwriting steps. But that puts a borrower much closer to obtaining a loan and locking in a rate and term.
4. Don’t forget what kind of money personality you have when getting a mortgage. By taking out a 30-year fixed rate loan rather than a 15-year mortgage and investing the money saved on monthly payments, you might earn a higher return on your money in the long run.
5. Don’t forget that homeownership brings with it many burdens. The cost of defaulting on a loan is much greater than the penalty of missing a rent payment.

First things to do after buying a new home!

You closed on your new property. The boxes are off of the moving truck, the furniture is in the right rooms and you are wondering what to do first. Here is a checklist of important tasks that are high priority.

1. Test the smoke and carbon monoxide detectors. Install new alarms or change the batteries if necessary.
2. Establish an escape plan and safe meeting place with your family in the event of a fire.
3. Make sure you know where the main water, gas and electrical shutoff valves are, in case of an emergency such as a burst pipe or gas leak.
4. Determine which outlets serve which circuits and then label the breakers.
5. Change the alarm system code, garage code, and any other password-sensitive devices.
6. Change all of the locks and make a few sets of spare keys.
7. Update your car insurance, driver’s license and voter registration to reflect your change of address.
8. Have all your mail and magazine subscriptions forwarded to your new address. Keep a close eye on your bank accounts and credit cards, because during a move you are especially susceptible to identity theft if mail is not delivered to your current address.
9. Unpack any and all medication that may be needed. Also, make sure you have a first aid kit readily available and a fire extinguisher in the kitchen pantry.
10. Add any child locks that are necessary, on toilets, kitchen appliances, medicine cabinets, and any doors that lead outside. Do not forget to place child safety gates and safety plugs in outlets if you have small children.

Why you should plan multiple visits to a home before buying!

For most of us, a home is usually the largest single investment of a lifetime. Such a large purchase warrants multiple visits before making a purchase and it is recommended that you stagger the times of these visits to get a comprehensive experience of the property. Here are some things to pay attention to when viewing a property.

 1. Wall-to-wall windows coupled with an open floor plan may seem picturesque midday. Schedule a visit at sunset to get an idea of how light floods through the home and think about how you would ensure privacy at night. It still may be an ideal choice but it is wise to get a realistic view and calculate the cost of window treatments.
2. Visit or drive by a prospective home at different times of the day. That seemingly quiet residential street may be a noisy, highway-feeder street during morning or evening rush hour. The same may be true for the morning commute but if you only visited the property midday, you would have no idea.
3. The adjacent school may seem like a nice perk, but during school hours, the daily playground noise and extra traffic may be more than you bargained for. If you are viewing the home in the summer, ask your REALTOR® or even neighbors about what you can expect.
4. It may be nice to be within walking distance to bars and restaurants, but consider the amount of pedestrian traffic. Will late night foot traffic lead to noise or disorderly conduct? Also, remember you can always visit the local police department to get crime statistics of an area.