When you’re applying for a mortgage, providing adequate documentation can feel like an intimidating process. Depending on the situation, it could take you weeks to track down all the necessary paperwork and get it to your lender, only to be asked for more. To heighten the stakes, if you can’t get your documents submitted in a timely manner, it can seriously slow down the mortgage approval process. (Fortunately, Rocket Mortgage® by Quicken Loans® makes the documentation process easy by allowing you to automatically share your financial information, speeding up the procedure and cutting down on the amount of paperwork you need to provide.)
While you may get frustrated after being asked to send over yet another verification of income, take heart that this process is meant to protect you from entering into a loan agreement you might not be able to uphold. Your mortgage lender wants to make sure they’re giving loans to borrowers who will be able to pay them back. It’s a process that protects you, the lender and the economy as a whole.
How can you be prepared going into the process, so that you spend less time hunting for paperwork and more time hunting for your dream home? Here are some of the basic documents you should have ready when you begin your mortgage application, to help you expedite the process of securing a home loan.
Part of ensuring that you can pay your monthly mortgage payments is for your lender to verify that you have a steady and adequate source of income. This includes looking at your employment and earnings history, as well as considering any other funds that you receive regularly (such as alimony or child support).
Gaps in your employment history or the frequent changing of jobs may signal to an underwriter (the person who reviews all your documentation and decides if you’re approved for a mortgage) that you’re a riskier bet than someone who’s been at the same job for a decade, since any employment disruption can make it harder for you to make payments.
In addition to verifying that you’re employed, your lender will want to look at the past couple of years of your income history. Underwriters are interested in a steady income, so fluctuations could be problematic, even if your income is on the upswing. If your income goes back down to previous levels, will you still be able to make your payments? How likely is your income to remain at the level it is now and, with it, your ability to make mortgage payments? These are some of the questions an underwriter seeks to answer.
Here are some documents underwriters look at to verify your income:
- Last 2 years of federal tax returns
- Recent W-2s (going back 2 years) and recent pay stubs
- 1099 forms and profit and loss statements (if you’re self-employed)
- Divorce decree or other legal documentation verifying that alimony and/or child support payments will continue for at least 3 years following the mortgage application and proof of at least 6 months of regular payments prior to application
A common misconception with this part of the mortgage process is that it’s impossible for people with nontraditional forms of income to get a loan. While you may have to provide more supporting documentation, as long as you have it (and a history of bank statements showing the money has been deposited into your account) to back up your reliable and continuing source of funds, you shouldn’t have too much trouble using other forms of income to qualify for a mortgage.
Assets and Liabilities
Lenders want to be sure that you can make your down payments, closing costs and mortgage payments even if you encounter financial troubles. To do this, underwriters look at your financial assets to determine if you have the cash – also referred to as liquid financial reserves – to cover the mortgage.
This cash can come in many different forms, including bank accounts, investment portfolios, retirement savings and even money gifted to you from a relative.
You’ll need to provide thorough documentation of any funds you plan on using to help you qualify:
- Recent statements from any account (for example, checking or savings accounts, investment portfolios, trust accounts) with readily available funds, going back at least 60 days or the most recent quarterly statement
- Most recent retirement account statements
- Proof, such as a copy of both the check and the deposit slip, that gift funds are in your account
- Signed letter from gift giver that includes a statement verifying that no repayment is expected
- Documents surrounding the sale of assets – proof of ownership, independent verification of the asset’s value, proof of transfer of ownership (such as a bill of sale and something, such as a deposit slip, showing that you received the proceeds)
Your lender will also look at your liabilities, or your debt-to-income ratio, to determine how much money you’re required to regularly pay to various creditors. For this, a lender may ask for supplemental information about any long-term debts you may owe, such as car or student loans.
Your credit score will be a big factor in determining whether you’re approved for a loan and the terms you’re offered if you are.
For this step, you’ll need to provide your lender with verbal or written permission to pull your credit report. They’ll look at your credit history and decide your level of creditworthiness. With certain events, such as bankruptcy or foreclosure, you’ll have to wait a certain number of years before you’re considered eligible for a home loan.
If there were any extenuating circumstances that led to some bad marks on your credit report, there are a few items you can provide to help make the case that a negative event was out of your control and a one-time occurrence. These include:
- Documents that confirm the event, such as medical bills or a layoff notice
- A letter of explanation that explains the documentation provided and illustrates what happened and why you couldn’t resolve the situation without taking a credit hit
In addition to looking at your credit report, if you’re currently a renter, your lender may ask you to provide proof of rent payments for the last 12 months, confirmed through canceled checks, bank statements or landlord verification.
Keep in mind that additional documentation may be required depending on your specific situation. It’s important to discuss with your lender the required documents needed to see your loan through to completion.
A Final Mortgage Loan Documents Checklist
As you locate and organize your documents, cross-check your stack of paperwork against this checklist to make sure your lender will have all the information they need:
- 2 years of tax returns
- W-2s from the past 2 years
- Recent pay stubs
- 1099 forms and profit and loss statements for self-employed individuals
- Divorce decrees verifying alimony and child support payments
- Proof of social security or disability income
- Bank account statements
- Stock or bond account statements
- Retirement account statements
- Proof of gift funds and gift letters
- Documents for the sale of assets
- Proof of outstanding, long-term debts
- Letters of explanation for credit mishaps
- Documented rent payments for current renters
Of course, you’ll also need to assemble your actual mortgage application, which will include additional information about your current financial standings and the real estate you’re looking to purchase. Similar to other large purchases, your lender will likely verify your identity with a photo ID, so it’s a good idea to have one readily available with the rest of your documents.
The Bottom Line: Organizing Your Mortgage Documents Saves Time And Energy
Having all your documents in one place won’t guarantee that your application will be approved, but staying organized can expedite the process and remove some of the stresses of buying a home.
Keep in mind that your final list of documents may look different, as required documentation varies from lender to lender. If you have specific requirements for a mortgage or a unique financial situation, consider asking your lender to provide their own list of necessary mortgage documents.
Ready to start the process, but intimidated by all the paperwork involved? Rocket Mortgage® makes your mortgage application process easy. Get started online or talk to one of our Home Loan Experts today at (800) 785-4788.
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