Documents You Need During the Mortgage Application Process
It is only fitting that a decision as impactful as buying a home comes with an application process that is equally confusing.
Getting approved for a mortgage and finally closing on your home can be lengthy process, not to mention one that requires plenty of paperwork. Usually, mortgages are in the six-figures, so home loan lenders want to be absolutely positive that you will be able to meet all monthly payments until the loan balance is paid off.
In order confirm your qualifications as a borrower, mortgage lenders will need a considerable amount of documentation, including things that will prove your income, credit history, outstanding debts, and assets.
Not only will this documentation provide the basis for either approving or denying you a mortgage, it will also have an impact on the mortgage loan terms you are offered; a lower interest rate due to a high credit score could save you thousands of dollars in the long run.
In this article, we will run through all of the different types of documentation that you will need for the mortgage application process so that you have it all handy when it is finally time to apply for a mortgage.
Uniform Residential Loan Application
This is really the first documentation that you will need when you have found a mortgage lender that needs to verify your qualifications as a home loan borrower.
The Uniform Residential Loan Application will call for you to fill out some general information, like the home that you are looking to purchase, your previous employers, and your personal finances.
Once this is filled out and completed, than the lender will start asking for some specific documentation to further prove your credentials.
Proof of Income
A mortgage lender wants to see that you, and possibly your partner, have a reliable, steady flow of income so that you will be able to comfortably meet your specific monthly mortgage payments. Because if you cannot, you run the risk of defaulting on your mortgage, which neither you nor the lender wants.
To prove your income, having the following is helpful:
Pay stubs: Similar to having your previous two W-2 forms on hand, you want to have your two most recent pay stubs ready to go. It is even better if these pay stubs are signed by your employer.
Income tax returns: A home loan lender will probably examine your tax returns from the last two to three years so that they can confirm your reported income.
If you are self employed, a freelancer, or contractor: You will need some extra documents, including an updated profit and loss statement, business debts, and the Form 1099s that you used to file taxes and report income.
Having assets will help ease the lender’s mind that you are financially stable and able to make a sizeable down payment, in addition to meeting the recurring mortgage payments.
Have the following ready:
- Bank statements: You will want to copy 60 days’ worth of bank statements to account for all assets you have. If you are applying with a partner, include his or her bank statements as well.
- Retirement and brokerage accounts: For a 401(k), you will want the last quarterly statement that shows your vested balance. For all other investment accounts, two months worth of statements will suffice.
Lenders place great emphasis on a borrower’s debt-to-income ratio, or what your monthly debt obligation is relative to how much income you earn each month. By getting an idea of your outstanding debts, a mortgage lender can more accurately evaluate you.
Be ready to show the following:
- Monthly debt payments: Include all of your monthly debt payments, including those made for student loans, credit cards, previous mortgages, auto loans, and medical debt. You will want to include information like the lender’s name, your account number, loan balance, and the minimum payment for each debt.
While you won’t actually provide the lender with your credit report, the mortgage lender will seek your permission to inspect your credit history, in addition to your credit score.
Lenders want to see as few late payments, judgments, or other negative marks as possible when evaluating your credit history. While a few negative credit marks won’t disqualify you from getting a mortgage, it may impact the loan terms that you receive.
In the same vein, a high credit score coupled with a spotless credit history will likely lead to you receiving a very favorable mortgage interest rate.
Depending on the mortgage lender and the situation, you may be asked for a few additional items.
These other records may include:
- Rent: If you have been renting a home, the lender will want proof that you have been making on-time payments for 12 months, in addition to the landlord’s contact information.
- Divorce: If you are divorced from a previous marriage, get a copy of your divorce decree, which will detail any child support or alimony payments.
- Noncitizens: If you are not a U.S. citizen, you are not disqualified from receiving a mortgage. The lender will likely want to know more about your permanent residency and immigration status, in addition to a copy of your green card and employee authorization document.
- Gift letter: If you are paying for some, or all, of your down payment via gifts from friends or family, the mortgage lender will want to see a letter from the gift-giver that states that he or she does not expect repayment.
- Bankruptcy and foreclosure: If you have a bankruptcy or foreclosure on your credit history, you should ask the mortgage lender how long you will need to wait before getting back into the mortgage market. With a foreclosure, you may possibly be forced to wait seven years, while with a bankruptcy, you will need to prove that your debts have been discharged.
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