Are you ready to finally become a homeowner? All you need to do is prepare the documents to apply for a mortgage and arrange your total cash to close.
There are six minimum requirements for buying a house through a mortgage. It includes proof of your name, income, and Social Security number. It also needs the property address, home value, and loan amount.
If you qualify, a lender then asks you to pay the total “cash to close”. It is composed of the down payment and the closing costs. The closing date becomes a challenge for many mortgage applicants, as they lose hope after discovering they lack sufficient funds to pay the initial fee.
But, if you apply for assistance, you may receive extra money to pay a lender upfront. You may end up having to save a little to close a mortgage loan.
There is easy access to the documents required for a mortgage application. But, acquiring the funds to close it is a challenge for many. This is why Community Home Investment Programs (CHIPs) help those in need of a few thousand dollars. The extra money may help you proceed with the home-buying process.
So, what are you waiting for? Learn more about the requirements of a mortgage application and CHIPs below.
Express Takeaways
- There are minimum requirements you need to submit to apply for a mortgage. The extra documents you submit help lenders create a more accurate loan estimate.
- The process of mortgage approval involves a closer review of the 4 C’s. It is the applicant’s credit history, capacity, cash, and the property’s collateral.
- Down payment and closing costs comprise the total “cash to close”. Applicants must pay these to proceed with the mortgage loan.
What Are the Minimum Requirements for a Mortgage Application?
The Real Estate Settlement Procedures Act (RESPA) regulates the home loan process. It became effective on June 20, 1975. It outlines the following minimum requirements a loan originator must ask from a borrower:
- Name
- Gross monthly income
- Social Security number to get a credit report
- Property address
- The estimated value of the property
- Loan amount
Mortgage lenders may ask for certain documents to support the above requirements.
What Documents Do Mortgage Lenders Ask in an Application?
A mortgage lender may need you to submit the following documents:
- Name – photo ID such as a driver’s license
- Gross monthly income
- Recent pay stubs
- Latest bank statements for your checking and savings accounts
- Latest statements of your investments such as 401(k)s
- Direct deposits
- Wage and Tax Statement (W-2 forms) from the past 2 years
- Tax Returns
- Alimony or child support documents
- Self-employed individuals may additionally present the following:
- Profit-and-loss statement
- Business License
- IRS Form 4506-T
- Asset account statements
- Social Security number – lenders ask for a copy of your social security card. They also ask for your permission to get your credit report. It will help them assess your financial situation.
- Property address – found in the sales contract signed by the seller and buyer.
- The estimated value of the property – the sales contract provides details on this.
- Loan amount – as indicated in the application.
A loan originator may not ask you to submit other documents. But, you may provide extra information to make the Loan Estimate as accurate as possible.
What Other Documents Can Applicants Submit in a Mortgage Application?
You may provide more information about your financial situation such as:
- Debts
- Recent bankruptcy
- Other existing loans
- Nonwage income sources
Information on the above helps a loan officer create a more precise loan estimate for you. Letting them know about the kind of loan you would like to apply for also helps.
What Information is Helpful in a Mortgage Application?
A loan officer may want to know if you would like to apply for:
- A fixed or adjustable interest rate
- A down payment amount
- A loan type (FHA, VA, USDA, conventional, etc.)
- Paying points to lower the interest rate
- Receiving lender credits for lower closing costs for a higher interest rate
- Paying for other fees by yourself or as part of the monthly mortgage payments. It may include property taxes and/or homeowners insurance
- Locking interest rate at a set period
Submission of the minimum requirements and extra documents complete a final application. A lender is then required to provide you with a Loan Estimate within three business days.
What Do Mortgage Lenders Need After Proceeding with an Application?
After receiving a loan estimate, you have the choice to signify your intent to proceed. If you do this, a mortgage lender may ask for an application and/or appraisal fee. A financial institution then asks for full supporting documentation of your:
- Income
- Assets
- Other financial information such as
- Available reserves
- Renting history
- Utility payments
- Debt accounts such as student loans, car loans, and others
The above information allows a mortgage lender to take a closer look at what you submitted at first. A company may also ask for other documents. The result of their assessment will determine if you qualify for a mortgage loan.
What are the Minimum Requirements for a Mortgage Approval?
There are 4 C’s that determine an applicant’s creditworthiness.
Credit History
Mortgage lenders review your credit score and history to decide if:
- You have the appropriate income type to qualify
- You have other liabilities
- You have an ideal debt-to-income ratio
The mortgage type you will apply determines the minimum credit score you need to have.
What are the Minimum Credit Scores Required for Every Mortgage Type?
Below is the list of minimum credit scores many mortgage types accept:
- FHA – 500
- VA – 580 to 660 which depends on the lender
- USDA – 620 to 640 which depends on the lender
- Conventional – 620 to 740 which depends on the lender
The above credit scores provide data on how you pay your bills. It also shows if you have other financial obligations. As it may affect how you may settle a mortgage loan.
Capacity to Repay
Lenders review your debts and income to assess if you will have enough funds to repay a mortgage loan. It allows them to get a picture of the following:
- Your recent and future financial position
- Source of funds
- Intended use of property
Your financial statements may also give an idea of how much money you have available to pay upfront.
Cash Assets Available
Lenders check if you have enough sources of income that may convert into cash. The money you will have available may pay for the closing. It may also pay for future monthly mortgage payments. Cash assets and reserves may come from the following:
- Savings
- Money market funds
- Individual Retirement Accounts (IRAs)
- Certificates of Deposit (CDs)
- Stocks
- Bonds
- 401(k) accounts
- Cash gifts
- Down payment assistance
- Cash from grant programs
- Sweat equity
The reserves article outlines the minimum requirement for every loan type.
Collateral
Mortgage lenders order an appraisal from a third company. It determines the value of the home you would like to buy. It provides information on a property that has enough value to serve as collateral. It also examines if a home’s sale price matches its current market value.
What Are the Minimum Requirements for a Mortgage Closing?
After a mortgage approval, a lender provides you with a Closing Disclosure. A funding institution must provide it three business days before the closing date. It provides final details on the loan such as:
- Loan Terms
- Projected Payments
- Loan costs
- Other costs
- Summaries of transactions
- Costs at closing
The document also provides the calculation of the total “cash to close”. An applicant needs to bring the indicated amount on the closing date.
What is the Minimum Cash to Close a Mortgage Loan?
The closing costs and down payment comprise the total “cash to close” a mortgage loan. Closing costs may range from 3% to 6% of the loan amount. While the following mortgage types set the minimum requirements for a down payment:
- FHA – 3.5%
- VA – 0
- USDA – 0
- Conventional – 3% to 20% depending on the lender
If you are unable to come up with the above, you may apply for a CHIP. State-wide and national initiatives help mortgage applicants proceed with a loan. Visit Homebuyer Wallet to find more details on these financial aids. Once you have the funds for the total “cash to close”, a mortgage loan proceeds. Then, there is a finalization of the documents and funds transfer. It is when you finally become a homeowner.
There are minimum requirements for a mortgage loan application, approval, and closing. Documents help a lender assess your credit history, capacity, and cash assets. Financial institutions also assess if a property’s value is enough as collateral. Closing costs and down payment comprise the total “cash to close” required to settle on an agreed date.
The fee for both is essential for a mortgage loan to proceed and help you finally become a homeowner. It is why CHIPs exist to help those in need of a few thousand dollars. The money may help pay a mortgage lender upfront. So, once you are ready to apply for a mortgage, the next thing you may do is find an ideal CHIP. You may enjoy the financial aid available for potential homebuyers and soon-to-be homeowners!
Article Sources
Homebuyerwallet.com requires its writers to get information from original and reliable resources. Please see our editorial policy to learn more about our standards for producing factual information and content.
- Consumer Financial Protection Bureau, “Real Estate Settlement Procedures Act, https://files.consumerfinance.gov/f/201308_cfpb_respa_narrative-exam-procedures.pdf”
- Consumer Financial Protection Bureau, “What information do I have to provide a lender in order to receive a Loan Estimate?, https://www.consumerfinance.gov/ask-cfpb/what-information-do-i-have-to-provide-a-lender-in-order-to-receive-a-loan-estimate-en-1987/”
- Consumer Financial Protection Bureau, “Review your Loan Estimates, https://www.consumerfinance.gov/owning-a-home/compare/review-loan-estimates/#:~:text=Once%20you’ve%20submitted%20your,the%20lender%20and%20ask%20why.”
- Consumer Financial Protection Bureau, “My loan officer said that I need to express my —Intent to Proceed— in order for my mortgage loan application to move forward. What does that mean?, https://www.consumerfinance.gov/ask-cfpb/my-loan-officer-said-that-i-need-to-express-my-intent-to-proceed-in-order-for-my-mortgage-loan-application-to-move-forward-what-does-that-mean-en-1989/”
- The U.S. Department of Housing and Urban Development, “General Information on the Underwriting Process, https://www.hud.gov/sites/documents/4155-1_1_SECA.PDF”
- Freddie Mac, “The 4 Cs of Qualifying for a Mortgage, https://myhome.freddiemac.com/blog/homeownership/20171204-4Cs-qualifying-mortgage”
- FHA, “FHA Loan Requirements, https://www.fha.com/fha_loan_requirements”
- The U.S. Department of Veteran Affairs, “VA Guaranteed Loan, https://www.benefits.va.gov/BENEFITS/factsheets/homeloans/VA_Guaranteed_Home_Loans.pdf”
- The U.S. Department of Agriculture Rural Department, “Credit Analysis, https://www.rd.usda.gov/files/RD-SFH-CreditNotes.pdf”
- U.S. Bank, “First-time home buyer loans, https://www.usbank.com/home-loans/mortgage/first-time-home-buyers/first-time-home-buyer-loans.html”
- Consumer Financial Protection Bureau, “Closing Disclosure Explainer, https://www.consumerfinance.gov/owning-a-home/closing-disclosure/”
U.S. Bank, “Conventional loans vs. FHA, https://www.usbank.com/home-loans/mortgage/first-time-home-buyers/fha-vs-conventional-loans.html#:~:text=Things%20to%20consider%20about%20conventional,required%20to%20carry%20mortgage%20insurance.”
