Guest view: The mortgage checklist

Listen to this article

Here’s what you should consider if you’re looking to buy a home: Employment, income, assets, credit and an independent third-party appraisal on the home being purchased.

Employment

The lender will verify your employment by contacting your employer after you sign a form authorizing an employer to release employment and income information to a prospective lender. The required information will include year-to-date income, position, title, overtime, bonus and length of employment with the company.

Also, while lenders usually only verify the borrower’s current employment situation, they may want to confirm previous employment details if the current position held is less than two years in duration. Lenders use this information to calculate several metrics to determine the likelihood of a borrower repaying a loan on time and in full.

Additionally, lenders often require the Internal Revenue Service to provide a “Transcript of Tax Return” that allows the lender to compare to the copy the borrower provided to the lender.

Income

When you apply for a mortgage, lenders will confirm accurate income including overtime, bonuses, et cetera. Lenders will typically request two years of W-2s from you during the application process. Income is a critical part of the process, so a lender must have evidence that you earn enough money to afford the total mortgage payment and other monthly expenses.

Assets and liabilities

Your assets are the possessions you own as well as savings you have accrued. Before approval, mortgage lenders require that you have adequate assets to pay the required down payment and closing costs. Assets included for mortgage lending purposes include any down payment, checking and savings accounts, gifts from family members, and stocks and bonds.

Real estate, automobiles, retirement accounts, and the net worth of a business will also be counted as assets on a home loan application.

Liabilities listed on the loan application include all monthly loan payments, mortgages, alimony, child support and all other debt. Alimony and child support, if received, can be counted as income. Job-related expenses, such as for child care and union dues, are also counted as liabilities on the form. On a home or mortgage loan application, liabilities are subtracted from assets to determine net worth for decision purposes.

Credit

Credit scores are calculated from five different categories in your credit report. The importance of the categories determine how it is weighted and your credit score is calculated. The five categories and percentage of impact to your score: Payment history (35 percent), amounts owed (30 percent), credit history (15 percent), new credit (10 percent), types of credit (10 percent).

Appraisal

The appraisal is a key component of the home-buying process. This necessary step determines the value of the home you wish to purchase. It is important to have a qualified, licensed appraiser perform the appraisal. Neither the borrower nor the lender can influence the outcome of the appraisal.

An appraiser will use one of two common methods to determine the value of your home. Unless your home is a new build, your appraiser will likely use the sales comparison approach. The appraiser will estimate the property’s market value by comparing it to similar properties that have sold recently in the area, also know as comparables.

If your home is brand new, the cost approach will also be used to determine the market value. In this case, the appraiser estimates how much it would cost to replace the home if it were destroyed as well as evaluating recently closed similar comparables in close proximity to the subject property.

Getting a mortgage can be a daunting and stressful experience. We strongly recommend utilizing an established local mortgage lender with a track record of satisfied clients and one who has demonstrated the ability to successfully meet contract closing dates established in the agreement of sale.

Brad Dimmig is president of Homesale Mortgage LLC and a partner in Homesale Realty.