Planning to buy a home in 2024? Knowing the steps and documents required to apply for a mortgage can make the process much smoother. This guide will walk you through the essential steps and explain some specialized loan options—like Jumbo, Bank Statement, and DSCR loans—to help you find the best fit.
- Check Your Credit Score
Your credit score is a crucial factor in determining your loan eligibility and the interest rate you’ll receive. Most lenders require a score of at least 620 for conventional loans, but a score of 700 or higher can give you access to better terms. Higher scores are especially important for Jumbo and other non-conforming loans, where lenders typically require 680+ scores.
Tip: If your score is lower than you’d like, consider paying down debt or working with a credit counselor to boost it before applying.
- Determine Your Budget and Down Payment
Setting a realistic budget and knowing your down payment amount can guide your home search. Traditional loans generally require at least 3-5% down, but a 20% down payment can help you avoid private mortgage insurance (PMI). You do have the option to buy out your PMI. Speak with a licensed Loan officer for more details on the best options. Here are some guidelines by loan type:
- Conventional Loans: Typically 3-20% down
- Jumbo Loans: Often require 10-20% down or more, depending on the lender
- Bank Statement and DSCR Loans: These can have flexible down payment options require no tax returns and may require higher reserves
- Gather Required Documents
To simplify your application, here’s a checklist of essential documents:
- Identification: Driver’s license, passport, or other government-issued ID.
- Proof of Income: Recent pay stubs, W-2s from 2023 and 2024, and tax returns for the past two years. Self-employed individuals will need 1099s, tax returns, and a year-to-date profit and loss statement.
- Bank Statements: Last two bank statements to show your financial reserves and down payment
- Employment Verification: Contact information for your employer, and possibly a letter.
- Credit Report Authorization: A credit check is part of the application process.
Specific loans, like Bank Statement Loans and DSCR Loans, have alternative documentation requirements, which we’ll cover below.
- Loan Options to Consider
In addition to conventional and government-backed loans (FHA, VA, USDA), here are three specialized loan types that may be helpful, depending on your financial profile:
Jumbo Loans
Jumbo loans are for buyers purchasing high-value properties above conventional loan limits (typically $726,200 in most areas). These loans are common in high-cost areas and often require:
- Higher Credit Scores: Typically 680 or above but some lenders and brokers can go as low as 640 with exceptions
- Significant Down Payment: Usually 10-20% or more
- Ample Reserves: Lenders may require 6-12 months of reserves to demonstrate financial stability. Jumbo loans often come with stricter qualification criteria due to the higher loan amounts, but they can offer competitive rates for well-qualified borrowers.
Tip: You can request an exception from your loan officer to present your financial profile to an underwriter and credit risk. Guidelines are not set rules or laws they are flexible based on compensating factors.
Bank Statement Loans
Bank Statement Loans are designed for self-employed borrowers who may not have traditional W-2 income. Instead of tax returns, these loans use bank statements to verify income, typically requiring:
- 12-24 Months of Bank Statements: To demonstrate cash flow
- Higher Down Payment: Often 10-20%
- Good Credit Score: Usually around 620-680 or higher
These loans are ideal if you’re a business owner, freelancer, or gig worker with inconsistent income on paper but steady bank deposits.
DSCR Loans (Debt Service Coverage Ratio)
Debt Service Coverage Ratio (DSCR) Loans are designed for real estate investors who want to finance rental properties. Instead of verifying personal income, lenders look at the property’s rental income to ensure it covers the loan payment. Requirements typically include:
- DSCR of 1.0 or Higher: Rental income should at least match monthly loan obligations
- Minimum Down Payment: Usually around 20-25%
- Credit Score: Typically, 640 or higher but can see about lower scores. Check with your local loan officer
Tip: This type of loan is beneficial for investors who may not qualify for traditional loans based on their personal income but have strong rental properties and or history.
- Get Pre-Approved
Once you have your documents, submit them to your lender for pre-approval. This step determines your borrowing capacity and makes you more competitive in the market. Pre-approval includes a hard credit check, so limit credit
inquiries to avoid impacting your score. This is highly recommended since you will not fully understand what your max payment per month can be or purchase price.
- Apply and Lock in Your Rate
When you’re under contract, your lender will provide an interest rate, which you can lock to avoid fluctuations. Many lenders offer rate locks up to 60 days, with extended options for an additional fee. Normally sales contracts are 30 or 45 days so the shorter term typically the better rate and credits or charges will be.
- Underwriting and Final Approval
During underwriting, the lender reviews all documentation to confirm you meet the loan criteria. You will work with your local loan officer and processor to help guide you on these items. For specialized loans like DSCR or Bank Statement, the underwriting process may differ, with more emphasis on cash flow and asset verification.
- Close on Your Loan
After final approval, you’ll receive a Closing Disclosure detailing loan term, closing costs, and other fees. On closing day, you’ll sign the paperwork, pay the required costs, and officially become a homeowner.
Tip: please make sure you coordinate with the title company to wire the final numbers. This will be on your Final CD, closing disclosure, so please check with your title company and assigned loan officer for those details.
Final Thoughts
Navigating the mortgage application process can feel overwhelming, but with the right preparation, it becomes more manageable. At My Miami Mortgage Brokers, we specialize in Jumbo, Bank Statement, and DSCR loans, as well as traditional mortgage solutions. Contact us today to discuss your goals and find the perfect loan to make homeownership a reality in 2024.