What paperwork do you need to provide to a mortgage lender to secure a mortgage loan? Gather these six documents beforehand to speed along the process. Every mortgage lender requires paperwork in order to verify all the financial information about your income, debts, and assets. Let’s look at the six major documents your lender will need to process your mortgage loan.
1. Tax Returns
You will need to provide a copy of your most recent tax return. This includes not just the 1040 form, but all the other pages and schedules you turned into the IRS. The loan officer will look at your tax return to see if they find anything fraudulent, including whether your income matches your W-2s.Then, your lender will want to get a transcript of your tax return from the IRS. This transcript shows the line items from your tax return as originally filed. This will help your lender protect themselves against fraud. To allow your lender to get a copy of your transcript, you will have to sign IRS Form 4506-T.
2. W-2 Or 1099 Forms
If you work for an employer, you will need one or two years’ worth of W-2s depending upon your lender. If you are self-employed, you will need to provide the last two years’ 1099 forms. If you have not filed a tax return with your business, your bank will want to see your profit and loss statement.These forms provide proof to your lender that you have employment and income. Additionally, they will help your lender see the trends in your earnings and whether your business is gaining or losing money. Although these documents seem to be just repeats of your tax returns, they help show a more complete picture of your financial stability.
3. Paycheck Stubs
The last three months of paycheck stubs will show the bank an exact figure for your income. Make copies of these stubs and keep the originals in a safe place. If you get paid online, you should be able to access your company’s website to print out these copies. If not, contact your HR Department.4. List Of Debts
Once you lender knows how much you earn, they will want to know how much you owe. Therefore, you will need to list all your debts, along with the monthly payments. This includes credit card balances, car loans, personal loans, child support, student loans, and existing mortgages. Be sure that you don’t just bring the list, but accompanying documentation to show the amounts owed monthly and overall.Why does the lender need this information? So they can determine your debt-to-income ratio. This is the percentage of monthly income that is spent on debt payments. There are two types of debt-to-income calculations–front-end and back-end.
A front-end ratio is calculated by adding up your expected housing expenses and dividing it by how much you earn. So, if your housing costs $1,000/month and you earn $4,000/month, your front-end ratio would be 25%. The back-end ratio takes all your debt into account. This can be calculated by dividing your monthly debt payments by your monthly earnings. So, if you earn $6,000 per month and owe $2,500 in debt, you debt-to-income ratio is $2,500 divided by $6,000, or 41.7%. Lenders are looking for front-end ratios of 28% of less and back-end ratios of 36% or less. Higher ratios can be accepted depending upon your credit score, savings, down payment, and type of loan.
5. List Of Assets
In addition to what you earn and what you owe, the lender will want to know what you own. This is for two reasons. The first is to assure that you have the down payment for the loan. Down payments have to be money that has been saved and not money gifted from friends or family. To show that you have saved this money, you will show your bank statements.The second reason for claiming assets is to show the bank that you can weather financial storms. Lenders feel better about lending money if they feel you aren’t stretched too thin. Having extra assets gives you breathing room in case an emergency arise. Such extra assets include a savings account, mutual funds, real estate, cars, brokerage funds, and other investments. Once again, have the statements and titles available that show your assets and what they are worth.
6. Canceled Rent Or Mortgage Checks
If you have been a renter, you will need to show 12 months of canceled rent checks and/or bank statements that show you have paid your rent on time. If you don’t have canceled checks, a signed statement from your landlord along with their contact information can be used to verify this information. If you own a home, you will need to show your canceled checks and/or bank statements showing that your mortgage was paid in a timely manner. Having these documents show that you are capable of paying the loan amount and have shown good faith by doing so in the past.Other Possible Documents
Although the list above contains the documents most often needed, different loans, banks, and situations may require other documentation. Here are a few others you may want to have on hand just in case:
- Proof a gift of money isn’t a loan
- Lease agreement if you have a home that you are going to rent rather than sell
- Rental property income statements
- Child’s birth certificate if child support is being counted as income
- Bankruptcy discharge papers
- Divorce papers
Remember, documents over 60 days old will have to be supplied again. So, if you have been house-hunting for several months, you will have to provide updated paycheck stubs and other dated materials.
Nakia Evans, GRI, REALTOR
Associate Broker
Coldwell Banker Residential Brokerage
22 W. Padonia Avenue, Ste. A-100, Timonium, MD 21093
Office phone: 410.252.2111
Direct phone: 443-864-1358
Email: nakiaevans@cbintouch.com
Coldwell Banker and the Coldwell Banker Logo are registered service marks of Coldwell Banker Real Estate LLC. Coldwell Banker Residential Brokerage is owned by a subsidiary of NRT LLC. If you have a brokerage relationship with another agency, this is not intended as a solicitation.
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