The first
few things you will need to provide regardless of your past will be an average
of 60 days of bank statements. This means all of them. I am relatively new to
the property rental business. I now have two rentals and I thought keeping my
money separate was a good idea. Having to provide information for more than
three accounts can be difficult. I learned this based on having six checking, two
savings, and multiple investment accounts. I will go further into this subject
in a different blog. Keep in mind all money that gets deposited and transferred
must be traceable. This can be a difficult process if you are like me and move
money from one account to another.
They will
want pay stubs, proof of mortgage payments or rent payments. Be prepared to
provide copies of all checks for the duration of your current lease if you have
a landlord, and a copy of your actual lease. I moved out of my last house into
an apartment because I was supposed to go to Kosovo. Keeping copies of my
receipts for interbank transfers was the furthest thought from my mind. This
caused difficulty. The apartment I rented was a side deal.
Another
thing to consider if you have a current mortgage on a rental is how you receive
your statements. I receive mine quarterly. Although this is not a bad way to
go, you may want to request a current statement depending on where you are at
within the quarter. Do this when you have made an offer. It will take a few
days to receive this statement. Just in case you do not know how quarters run:
Quarter 1- Jan-Mar
Quarter 2-
April-Jun
Quarter 3- Aug-
Sept
Quarter 4-
Oct-Dec
Having these
statements will show that you are paying your payments on time. It will also
show money being deposited into escrow and being paid out to insurance and
property taxes.
For those who have
had any late payments in the past a statement of explanation will be required. Underwriters
will want an explanation for why things were paid late. Underwriters can look
past certain discrepancies. Not everyone has perfect credit. They will also
inquire about all credit inquiries including theirs.
Information
on investments you may have will be expected. They will want to see current
statements. For most items the magical number is 60 days. Some banks will want
90 days. Having that extra thirty days on standby is not a bad idea. If closing
takes longer than 60-90 days you may have to provide the next 30+ days of
information. This can be common in short sales. I waited nine months for my
first home. I had to be approved three different times.
f you pull
money out of a retirement fund to invest in a home you will want to keep the statement, all
documents for the funds, and copy of where it was deposited into the account. Accountability
of all sums of money in the account you will be paying out of whether it is for
closing or not will have to be explainable. I have my money sitting in my
school account and I had to explain every deposit and transfer even though it
was for school and not closing.
Finally,
something else I highly recommend that you keep in mind is all statements need
to have your information and account number on them. It is always helpful to
highlight important information. Create a folder on your desktops and keep
everything in there. If they ask for something more than once you have easy
access to it. If you do it this way, it can be sent off quickly.
Soldiers, there are some things you need to know. Some banks will
want more than a Leave and Earning Statement. They may ask about mybiz. Here
are some links. I was not able to get it to work. http://www.cpms.osd.mil/Content/Documents/DCPDS-EV-FactSheet-LO.pdf,
https://compo.dcpds.cpms.osd.mil/,
http://cpol.army.mil/library/benefits/EmploymentVerification/EmploymentVerificationDirections.pdf.
These are what you will need if you can get them to work. They may have to speak
to your leader to verify employment. It is silly; however, civilians do not
always understand this.
As I said
earlier I am going to break up the list. The second part of the list is more
for people who have more than one home; however, they are still learning the
process.
For those of
you who are entering the rental property business and you are still learning
there are some things to keep in mind. Banks do not recognize rental income
until you claim it on your taxes. Typically they prefer two years on your
taxes. It can vary by bank; however, this has been my experience.
That is it
as far as my list of how to get started. Although this is about what you need I
would like to make a few other suggestions. If you have credit card debt pay it
down to about 20% if you can. This will help your interest rate. Paying off
auto loans will minimally help your interest rate. Cancelling credit cards can
also have a negative effect on your credit. I have
learned a lot along the way. I have made a lot of these mistakes. I have dealt
with a lot of disorganized companies who do not communicate properly. Sometimes
you are put into a difficult position when it comes to documentation and
closing dates. I have had to switch companies or hire mortgage brokers. Please
be careful with mortgage brokers. They cost you extra in closing and are not
always top notch. You can run into communication issues with banks too. Choose
wisely. I hope this makes the process easier on someone.
A Home buying
Checklist
o
60 Days of Bank Statements
o
60 Days of Paystubs
o
Proof of Rent/Mortgage payments
o
Copy of all current leases
o
60 Days of Mortgage statements (if applicable)
o
Late Payment Explanation
o
60 Days of Statements for investments (401K,
TSP, etc)
o
Proof of funds for closing and all other money.
o
Tax Returns for the past two years
o
Proof of all other incomes (alimony, child
support, second employers, etc)
The
list for the Newer Investor with more than one property
o
Copy of leases on investment properties
o
Proof of income on investment properties
(Checks, deposits, etc)
o
Mortgage statements for all other properties.
