One of the biggest goals that most adults share is to become a homeowner someday. This can be because having a home that they can truly call their own can signify achieving financial stability. A house can also mean that an individual has finally decided to settle down and plant their roots in one place.
It’s not surprising that a lot of young adults start preparing for their future once they have secured full-time employment. Along with having a semblance of financial freedom, these individuals can create and realize their life goals based on the timeline that they have made for themselves.
And it actually pays to be prepared. If you belong to the population of people that want to have their own homes one day, it could bode well for you to start making the preparations for it now. Doing so won’t mean that you have to buy a house right away, but it can make the task easier for you when you finally decide to become a homeowner.
Besides, knowing what you have to prepare as early as now can save you time and stress in the future because you won’t have to be hassled trying to find all the documents you need to apply for home loans. By identifying these requirements and keeping them all in one place, you can make the loan application process much less gruesome.
1. Loan Application Information
If you plan to apply for a conventional loan in a traditional financial institution, you would have to provide a comprehensive list of requirements before you can be approved. This can include requirements such as your government-issued identification and employment information for the past two years.
Typically, the application will require you to clearly identify what type of loan you’re aiming to get, which means that you’ll have to provide some information about the house you’re planning to purchase. However, since you’re not buying a home anytime soon, you can cross this bridge when you get there.
2. Income Verification
Most conventional loans will come with stringent requirements because lenders want to be assured that you will be able to keep up your end of the bargain. But they won’t trust you just because you made a promise – they will require you to provide evidence in the form of documents verifying your income source.
This can include your wage and tax statements from previous or current employers, income tax returns, and pay stubs. If you’re self-employed, you will have to present at least two to three years’ worth of federal tax returns both for your business and personal finances, income and file taxes, as well as profit-and-loss statements, to name a few.
3. Assets and Debts
Lenders tend to look at a potential borrower’s debt-to-income ratio to have an assurance that they have enough assets to cover their losses. This means that you will have to provide your future lender with a list of your current debt obligations, such as student loans, auto loans, or credit card debt so that they can calculate your ability to pay.
It can be worthwhile to keep a copy of the documents that state your assets and debts because your future lender may require you to present them. This can include two to three months’ worth of bank statements, retirement accounts, or investments that you list as part of your assets.
4. Credit Verification
Arguably the most important part of preparing to apply for a loan in the future is maintaining good credit scores. Traditional financial institutions like banks and private lenders are sticklers for good credit scores, which means that it will be harder for you to get approved for the loan you want if your score is below the minimum score to qualify.
Conventional lenders will ask for your permission to check your credit history when you apply for a loan. By having access to your history, they will be able to see any late payments, judgments, or other delinquencies on your credit score for the past seven years, which can affect your chances of getting approved.
Of course, the specific set of requirements will vary depending on the type of lender you choose, but these are the documentation that most lenders generally require. Knowing them in advance can help you prepare for the future so that you can avoid any bumps in the application process, especially if you lose your original copies. Here’s a quick tip for you: it could do you well to create soft copies for all your important documents and label them accordingly on your computer. You can also keep them on the cloud so that you will still have a copy if ever your computer breaks or gets lost. This way, you can access the requirements easily when you decide to start the loan application process and become a homeowner.