Documents you will need to get a Mortgage
Applying for a mortgage used to be a lot easier. You'd complete an application and the lender would pull your credit score and most of time you'd be approved. But today, lenders require paperwork that documents every facet of your financial life including taxable income, assets, rent payments and more. There is no escape from this for anyone as every borrower must jump through the many hoops of loan underwriting even if you are a perfect borrower.
Here is what you will need and what you can expect:
Paycheck Stubs and W-2s
Loan guidelines typically specify one month of verified income. You can prove this with a copy of your paycheck stubs. Guidelines typically require the most recent Form W-2, but some borrowers are asked for two years of W-2s.
Bank, Investment, and Tax Return Documents
Borrowers generally must supply bank statements for the last two months and investment account statements for the last available quarterly statement. In the past, only self-employed borrowers who went through full underwriting typically were required to present tax returns for the last two years but today, almost everyone is expected to provide a recent tax return, including all the pages and schedules. Borrowers also must sign IRS Form 4506-T, which allows the lender to get a transcript of the tax return from the IRS. This practice has become an industry standard as a fraud prevention tool. Tax returns are scrutinized for unreimbursed employee business expenses, self-employment business losses and signs of loan fraud, such as reported income that doesn't match an employee's W-2. Don't try to amend prior tax returns to show more income as that's a no-no.
Self-employed borrowers may have to submit a current-year profit-and-loss statement, especially if the year is more than half over or they haven't filed their prior year's tax return. Many self-employed borrowers used to be able to get loans with little or no income documentation, but no more.
Rental property Income
Borrowers who include rents from investment property in their income need to show the rental income on their tax return.
Gift letter and the Money Paper Trail
Borrowers who receive a cash gift toward their down payment should be prepared to provide a letter from the "giftor" that declares the gift isn't a loan. A copy of the giftor's bank account statement showing the funds, a canceled check, and the borrower's own statement showing the funds also may be required. These guidelines are much stricter than they used to be.
Other documents and letters
Borrowers also may be required to provide a copy of a divorce decree, proof of a child's age if child support is counted as income, bankruptcy discharge papers and more. Lenders also may demand letters that explain negative items on a credit report.
Tips for Supplying Loan Documentation
Bring in documents early. Doing so can speed up the process. Also, never cross out, white-out or alter any information on a document. Always provide every page of every document,- even the if the page looks like it has no value. Finally, remain ready to supply updated documents. Documents expire after 60 days, so if homebuyers take a long time in their house-hunting, we won't need the whole thing again, but they will have to bring in the most current paycheck stub and bank statement.