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Often I am asked by clients to send information to banks and mortgage brokers so they can either purchase or refinance a home. While this can be a fun and exciting process (that was a joke), people should really analyze their financial house and see: one, if they can afford the new
purchase or mortgage adjustment; two, if their credit and income is high enough to obtain the loan.

This process of cleaning your financial house begins with the gathering of information. It is no secret as to what documents the bank is going to need and how they are going to interpret them. SO, if we know what the rules are, why not get the information beforehand so as to avoid a surprise or disappointment (rejection by the bank).

All banks are going to need the following:

  • 2 years, possibly 3 years, of tax returns (federal only);
  • The last 3 to 4 months of bank statements and any other “sources of funds” accounts such as brokerage accounts and savings accounts;
  • A “Personal Financial Statement” (OK, don’t panic or run away!). You don’t need to do much here, except list the balances of all your assets (cash, stocks, IRA’s, 401(K)’s, Real Estate) and then list all your liabilities (loans, credit card balances, mortgages);
  • If you are self employed, or are a partner or shareholder of a closely held business, you are going to need 2 to 3 years of business tax returns and financial statements for these entities as well.

The banks also are going to pull your credit report. I would recommend subscribing to a credit monitoring company like “Lifelock” or “Experian”. Their reports will alert you to any “Skeletons in the Closet” the bank may see. It is better to know now and figure out how to correct any errors, or work on debt reduction to increase your credit score.


After gathering all the information, it is time to think like a banker (scary, I know!). First, if your credit score is under 700, you need to be ready to explain why. Take yourmonthly income (that was reported on your last two tax returns) and subtract any monthly debt payments. Obviously, if you get a negative number, you have an issue. Let’s assume you have a positive number. Next, subtract the estimated new
payment of the mortgage including real estate taxes and insurance. If what you have left is less than half of what you started with, you many have trouble qualifying for the loan.

This is the new way banks are looking at mortgage applications. Also, don’t think you will not have to put money down for a new home purchase--a distant memory, and I don’t see it coming back. Start planning now, this will help you achieve your goal of home ownership and obtaining a mortgage with a favorable rate!

Get your broom out!

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