As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.
In order to get preapproved for a mortgage, your mortgage lender will need to verify your income and asset information to determine how much home you can afford and the interest rate you’ll pay on the loan.
While it might seem a bit taxing to provide all this documentation, it benefits you in the end, as you won’t end up with a monthly mortgage payment that you can’t afford.
But before we get too deep in the weeds, let’s discuss what a verification of your income and assets entails and what documents you’ll need to ensure a smooth home buying process.
What Is a Verification of Income?
When a mortgage lender requests a verification of your income, they’re checking to see if you have the means to make your mortgage payments each month.
You wouldn’t borrow more than you have the means to pay back, and your monthly mortgage payments are no exception. That’s why your mortgage lender will request this information – it’s a way of making sure you’re able to finance your mortgage payments.
Mortgage Verification Requirements
In order to confirm your income, a mortgage lender will request a few documents. A good way to remember the documentation you’ll need is to remember the 2-2-2 rule:
- Two years of W-2s
- Two years of tax returns (federal and income)
- Two most recent pay stubs
Additionally, you should have records at the ready of your most recent checking account statements, current savings account statements, monthly debt obligations and statements from any other loans you may have (personal, student, auto, etc.) and your most recent credit card statements.
How Does Your Lender Verify Your Income for a Mortgage?
Your mortgage lender might also contact your employer directly to confirm your employment. This allows the lender to verify that the information on your W-2s and paystubs is recent and accurately reflects your income amount.
If you’re self-employed, you can still get a home loan. You’ll just need to show proof of a steady income. You can provide this information with your quarterly or year-to-date profit/loss statement and at least two years’ worth of your federal/ income tax returns, both business and personal.
Of course, the forms of income verifications and document requirements could vary based on your personal financial situation, so it’s best to confirm what you’ll need with your mortgage lender.
What Is Verification of Assets?
Just like mortgage lenders will want to verify that you have the means to make your monthly mortgage payments, they’ll also want to ensure that you’ll be able to pay the principal, interest, taxes and insurance in case of a financial emergency.
This is determined by your assets, or items you own that have value, like savings accounts, checking accounts, stocks, etc. When these assets have a cash value, or are easily converted into cash, they’re known as “liquid assets.”
Lenders want to confirm that enough of your assets are liquid in case of a financial emergency that leaves you unable to keep up with your mortgage payments. When life throws you curveballs that cost you access to your income (loss of a job, medical emergency, etc.) your liquid assets are there to help you pay your bills.
What Is an Asset Document?
Examples of documents you might have to submit to verify your liquid assets include:
- Checking accounts
- Saving accounts
- Certificates of Deposit (CDs)
- Mutual funds
- IRA/ 401(k) or other retirement plans
Cash is also considered a liquid asset, however, it needs to be “seasoned.” This means that the cash has been in your checking or savings account for a considerable time (at least two months, in this case) to prove that you’re a responsible saver, and showing your lender that you’re able to finance your mortgage.
Most lenders suggest to have six months’ worth of liquid assets in order to plan for an unforeseen financial issue. This ensures that you have a way to continue your mortgage payments, should something happen to your main source of income.
You can also submit proof of non-liquid assets, or assets that are harder to convert to cash like property, cars, self-owned businesses and any other item of material value like artwork or jewelry. However, these assets might be harder to liquidate in an emergency, as they may take time to convert into cash.
It may seem like you’re drowning in a sea of documents and paperwork, but there are a few ways you can avoid all the potential paper cuts.
If you’re thinking about getting a conventional loan through Fannie Mae, you’re now able to verify your income, assets and employment with just the direct deposit information on your bank statement.
Another way is to get started with Rocket Mortgage® by Quicken Loans, where you’re able to submit your documents completely online – no paper cuts necessary! Or, if you’d rather get in touch with one of our Home Loan Experts over the phone, you can call (800) 785-4788.
Do you have any questions about the income and asset verification process? Let us know in the comments below.
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