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About Real Estate: What buyers should expect when applying for a mortgage today

DEAR MR. MYERS: My wife and I have been waiting to buy our first home, but now we have decided that it’s finally time to start shopping, as prices in our area just keep going up, and interest rates are, too. What kind of documentation will we need to provide a lender in order to get a mortgage?

ANSWER: Documentation requirements vary from one bank to the next. Many lenders are being swamped with loan applications from potential buyers who, like you, are anxious to beat rising interest rates and home prices. Getting the paperwork that you’ll need in order to qualify for a mortgage now certainly is a good idea, because it will speed up the loan-approval process.

More than likely, the lender that you choose will ask for copies of the past two income-tax returns that you and your spouse filed and the W-2 forms that show how much each of you have earned. Expect to produce recent pay stubs, as well.

The lender also will ask about your employment history for the past several years, including the names and addresses of the companies you’ve worked for. If you’re self-employed, you will need to provide a year-to-date profit-and-loss statement for your business and a current balance sheet.

Be ready to explain any gaps between jobs. Banks don’t mind if you took time off to have a child or to go back to school, but they get jittery if a borrower spent a long time without working for no apparent reason.

The lender also will want to know where the money needed for the down payment and closing costs will come from. So expect to be asked for recent statements for your checking and savings accounts, stock-brokerage accounts and the like.

If your parents or someone else is giving you some or all of the down payment, they probably will be asked to sign a gift letter stating that the money is truly a gift rather than a loan that must be repaid.

The bank will want to know about your various debts. Make a list of all of your credit cards, as well as your auto and personal loans. Include the name and address of each creditor, the account number, the outstanding balance and the minimum monthly payment that is required.

Gathering all this paperwork can take several hours or even a few days, but it’s better to start now than to wait until the last minute.

As a bonus, providing all of this information to a bank or mortgage broker today could help you and your spouse become “pre-approved” for a mortgage. Pre-approved buyers have a big advantage in a hot real estate market, because sellers know that the financing needed to complete a sale is readily available, removing the uncertainty of accepting an offer from a buyer who doesn’t have such a guarantee.

REAL ESTATE TRIVIA: Buyers from other countries purchased $104 billion in U.S. residential real estate in the 12-month period that ended in March, the National Association of Realtors reports. That’s a 13 percent increase from the previous year, as international investors continue to seek the relative safety of America’s housing market and overall economy.

DEAR MR. MYERS: We are going to spend about $3,000 to remodel one of our bathrooms. Can we deduct this amount on our next income-tax return?

ANSWER: No, remodeling costs aren’t immediately tax-deductible. But you can add the $3,000 to your home’s adjusted-cost basis when you eventually sell, which will reduce any taxes you might owe on your profits.

DEAR MR. MYERS: I own a townhome that I recently began renting out. The homeowners association that governs the development has sent me a letter, demanding that I provide the names of the tenants, their home and work phone numbers and some other information to the HOA. I don’t think that such information is any of the HOA’s business, and I worry that providing the tenants’ personal info could prompt them to file an invasion-of-privacy lawsuit against me. What are your thoughts?

ANSWER: The homeowners association’s request is certainly reasonable. It needs to know who is living in the development so that it can determine who has a legitimate right to be there and who might be a burglar or other trespasser.

It also needs the tenants’ names and contact information in case there’s a fire, sudden plumbing leak or other emergency inside the unit, and it is unable to immediately reach you.

Many states have laws that specifically require HOAs to gather such info, which means that your tenants couldn’t successfully sue you or the association for invading their privacy. As an extra layer of protection, though, savvy landlords whose property is in a development that is governed by an association always include a clause or addendum in their lease agreements notifying tenants that their contact information will be provided to the HOA and that the landlord will be “held harmless” for the disclosures.

David W. Myers’ column is distributed by Cowles Syndicate Inc.

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