What are the documents needed for a mortgage application?
Get ready to get familiar with both your bank and your HR department.
Since the housing crash, lenders have become far more strict about documentation.
Years ago, subprime, no-doc loans ran rampant. Now, you must document everything about your income and assets.
But it doesn’t have to be a difficult process. You have to be well-organized.
Initial Documents Needed for Mortgage Application
When you first reach out to a lender for a home loan, they’re likely to pre-qualify you based on your credit score and stated income.
However, they will want to do either a pre-approval or guaranteed pre-qualification to ensure you know what you can get from them. This isn’t the full underwriting process, just a partial one.
You will likely start by giving your bank: your last three months of bank statements, your last tax return, and your last three W2s or 1099s. This is normal. They’ll use this information to estimate your qualifications for a home loan.
When you get an offer accepted and go into the underwriting process, you’ll find yourself sending these documents again.
ID and SSN: Proof of Identity
You’ll be asked for proof of identity throughout the home purchase. Get ready to provide your picture ID, social security card, or anything else that can prove that you are who you say you are. Your pay stub or federal tax returns may suffice if you don’t have your social security card. But you will need a valid picture ID to complete the mortgage process.
Bank Statements: Proof of Assets
You’ll need to hand over your last three months of bank statements to get started with your home loan. This is pretty straightforward. But the bank will also want an explanation for large deposits that aren’t part of your normal paycheck direct deposit. That might be a gift from family, the sale of a car, or anything else.
You might be asked to sign a Gift Letter if you received big gifts from families. Be prepared to continuously send any new statements to your lender as they’re produced. Every lender has a different mortgage application checklist to go through.
W2s, 1099s, and Tax Returns: Proof of Income
You’ll need your last three years of tax returns. The lender will want to see your federal return (1040) and any state or local returns you filed. They’re looking for two things: first, that you earn the income you say you do, and second, that your income is consistent year-over-year.
If you’re self-employed, things get a little more complicated. The bank will want to see your last three years of tax returns and your Profit & Loss statements from your business for the current year.
You might also be asked for additional documentation, such as 1099s if you’re an independent contractor or K-1 forms if you’re a partner in a business.
Otherwise, you’ll need your last 30 days of pay stubs. This shows the bank that your income is still coming in regularly, and you haven’t had any recent changes.
Debt and Credit Statements: Proof of Debt
For the most part, your lender will check on your credit report independently. But they may ask you to clarify some things they see on your report (such as duplicate entries) or ask you to tell them more about certain debts.
You’ll also need to provide documentation for any outstanding debts, such as student loans, car loans, credit cards, etc. This includes the name of the lender, your account number, and your current balance. That’s only if it doesn’t appear on your credit report, but some things don’t.
Let’s say you opened a credit card just before your mortgage loan application. It may not appear immediately on your credit report, but you must tell your lender immediately.
Other Documents Needed for Mortgage Application
As the underwriting process continues, you’ll likely be asked to produce other documents. And some documents will be produced by other people entirely (such as title documents). You should be guided through these by your lender.
Letters of Intent or Explanation
You may be asked to provide a Letter of Intent, simply a short letter explaining why you’re buying a home and your plans. This is most common if you’re buying some form of investment property, a second property, and a primary house.
You may also be asked to provide an Explanation Letter for certain items on your credit report, such as late payments or collection accounts. This is simply a way for you to explain the situation to your lender in your own words.
Title, Appraisal, and Insurance Documents
You’ll need to provide documentation for your home insurance policy. This is to protect the lender’s investment in your property. Sometimes, the lender will want to pay for home insurance themselves, and it will become part of your mortgage.
If you’re buying a condo or co-op, you’ll also need proof that you’re up-to-date on your monthly dues. If the HOA board needs to validate the purchase, you must provide proof of this.
You’ll also need to provide a copy of the purchase agreement for your home. This is to show the bank exactly what you’re buying and for how much. This happens fairly early.
Later, you will need to provide title documents and appraisal documents. The title agency will work on making sure that the title for the property is clean. The appraisal will tell the bank how much the property is worth. If the appraisal is too low, your mortgage lender may have questions or concerns.
Tips for Working With Your Mortgage Lender
Now that you know what documentation you’ll need to provide, here are a few tips to make the process go smoothly:
- Keep all your data in a single place. As lenders request documents from you, place them in a single folder. You can then easily send them information if they request it again.
- Sign up for digital statements. Digital statements make it much easier to send documents in, rather than having to scan them first.
- Don’t change anything significant about your finances. Don’t take in large deposits, don’t spend a lot of money on credit, and don’t get a new job. Anything that would enhance scrutiny is bad.
- Respond to requests fast. Often, one request leads to another. They might request a bank statement, but on that bank statement see something they need to question. In general, respond to requests within 24 hours.
- Try to understand the process. If your lender seems to be asking for a lot of documentation, ask why. For instance, they might be trying to clarify something specific about your work history that you could explain to them.
But while you should try to understand the process, it’s pointless to argue or be combative. While it may seem like excessive documentation, it’s designed to protect everyone from debt they can’t carry.
Bank Statement Loans
If you’re self-employed or have income that varies monthly, there’s a special kind of mortgage loan called a bank statement loan. With these loans, your lender will use your bank statements to verify your income instead of tax returns.
You’ll need 12 months’ worth of statements for both personal and business accounts. They will look at the deposits made into your account to come up with an average monthly income.
Remember that these loans often have higher interest rates and require a larger down payment than traditional loans. But if you’re self-employed, they may be your best option.
No Doc Loans
There used to be a type of loan called a no-doc loan, but these are pretty much extinct now. With these loans, you didn’t have to provide any documentation. This created a lot of problems and led to a lot of defaults.
If you want a mortgage with very little documentation, you’ll have to get a bank statement loan or stated income loan. These loans still require some documentation, but not as much as a traditional mortgage.
There’s a caveat. There are still no doc loans for investment properties. With investment properties, the idea is that the property is backed by the rental income that the investment property will bring in. So, if you’re looking for a no-doc loan for an investment property, you may still be able to find one.
But be very careful. Don’t take one out if you’re not confident you can pay on a no-doc loan. It’s not worth the risk if you end up with a property you can’t rent.
So, those are the documents needed for a mortgage application. When you’re applying for a mortgage, you’ll need to provide a lot of documentation. This includes tax returns, pay stubs, bank statements, and information about your purchasing property.
Be organized, pay attention, and respond in a timely fashion. All of this will help you close on your dream home faster.
You’ll need tax returns, pay stubs, bank statements, and anything else the lender asks for. It may feel invasive, but providing this information to the mortgage servicer will give them more information about your financial situation and what kind of loan you can qualify for.
To start a mortgage application, you’ll need your social security number, proof of income, employment history, bank statements, tax returns, and the property’s address you want to purchase. But your underwriter may ask for more information as they complete your application.
These rules relate to disclosures regarding your mortgage. You must receive initial lending disclosures within three days, early disclosures within seven days, and final disclosures within three days of closing.