So you are ready to take the plunge. Maybe you’ve been thinking about it for a while, and you’re finally ready to move from the dreaming stage to the planning stage. You want to join millions of other Americans and finally become a homeowner. But the more you look into it, the more daunting it becomes. What about your credit score? Is it even good enough? Do you have enough in savings? And what about the endless paperwork involved? How will you know if you have all of the right documents?
These are the common documents needed for a mortgage
While we break down each of these common documents needed for a mortgage, keep in mind that everyone’s situation is unique to them. You may only end up requiring some of these. Or you may need to provide others that we have not listed here.
Also, many companies are moving more and more towards being 100% paper free. This means that now more than ever, most paperwork can be stored, sent, and received electronically. Many of the documents on this list can be taken care of without the use of a printer. Check with your lender, your employer, and other places to see which can be supplied electronically. Not only is this better for the environment, but it can be a big time saver as well.
So, while keeping that in mind, let’s jump straight into these nine documents needed for a mortgage, and where to find them.
#1 Pay stubs
A pay stub is the part of your paycheck that itemizes your wages and shows what your net pay is to date. It shows what your earnings are, and what taxes have been deducted. This is just one of the documents lenders and underwriters use to verify your income and employment.
Your pay stubs play a part in giving lenders the assurance that you are able to repay the loan they are preparing to give you.
Some employers supply a physical pay stub with each paycheck. However, as we stated before, many companies are moving towards paper-free business practices. Direct deposits are common, as well as online portals where employees can log in and see their pay stubs and other information. If your company has an online portal, log in and download the PDF of your most recent pay stubs. These can then be emailed or faxed to your lender.
If your employer is more “old school”, they may have given you some paper pay stubs that you can supply to your lender. And don’t worry if you can’t find them! Your employer will have them on record somewhere and can likely reprint them easily for you.
#2 Tax returns
Tax returns are the files we fill out at the beginning of each year and submit to the IRS. These files report to the government our income, tax breaks, credits, deductions, additional assets, etc. For many of us, a tax return means a tidy little refund that we can add to savings or use to treat ourselves for working hard all year. But in the mortgage world, a tax return is a way to verify that your income and the government’s assessment of your income line up. It’s another piece in the puzzle that mortgage lenders and underwriters use to get the big financial picture of your debt to income ratio.
Lenders will usually request 1-2 years of tax returns. If you e-file your taxes each year through a program like TurboTax, then getting your hands on a copy of your return is very easy. Simply log in, select the one you’re looking for, and either print, fax, or email it to your lender. If you hired someone to do your taxes, then they should be able to provide you with a copy. They often keep several years of tax returns in their files. And finally, regardless of who you filed your taxes through, you can always get a transcript of your tax returns directly from the IRS website. This method will cost you $50 for each transcript you request a copy of.
A W-2 is a form that employers are required to give to their employees at the end of each year. They also send one to the IRS. These forms list the employee’s pertinent tax information including their wages and the federal, state, local, and other taxes that were withheld from their paychecks. Again, lenders are using these to get a picture of how big a loan you can reasonably afford. Remember, before giving you such a huge chunk of money, they want to make sure that your income has been consistent, and will remain stable in the years to come.
You will need to supply your lender with your W-2s from the last two years. If you can’t find your copy of them, you can always ask your employer. And again, you can always get it, along with a copy of your entire return, directly from the IRS website. Keep in mind, though, that it can take time ot process. You should allow for 75 days before receiving your copy once you have submitted your request and paid the fee. It would be a good idea to make sure you have a copy of your W-2s before you even start house shopping.
#4 Bank statements
A bank statement is simply a record of your bank account and the transactions that took place during a certain period of time. This allows the lender to verify that you have the money you claim to have.
Lenders will usually request the last two months of bank statements from you and any other co-applicants. To acquire these, you can log into your bank online, download the statements, and either email or print and deliver to your lender. Additionally, you can contact your bank to get a physical copy from them.
#5 Credit history
A credit history is a record of a person’s ability to repay their debts. This will include a record of:
- how well you pay your bills on time,
- the number of credit accounts you have open,
- how much you owe on each account,
- the length of time you’ve had them,
- and the number of recent credit inquiries you’ve had.
It also includes whether you have any bankruptcies, collections, etc. This is where your lender will find any car loans, student loans, and other debts you have accrued over time. Together, this information is used to create your credit score.
Your lender will use your social security number to do a credit inquiry and pull your official credit score and history. This history will help them determine how reliable you are at paying off your debts. Your credit score will help determine how high your interest rates will be, how big a down payment they will require, and what kind of loan you will qualify for. It goes without saying that the higher the credit score, the better. However, it isn’t necessary to have a perfect credit score to get a great loan.
Every state has different laws regarding acceptable forms of identification when taking out a mortgage. Your lender and/or realtor should contact you with a list of what kind of IDs you will need. Regardless of what state you live in, though, you will probably need to supply two forms of ID. One of these will need to be government-issued and include a photo of you. Acceptable forms may include a driver’s license or permit, a US passport, a state-issued identification card, or a military ID.
Your second form of identification will need to have your name and your current address. These may include utility bills, property taxes, health insurance, current bank statements, etc. If you use paperless billing, you can simply contact one of your utility providers and request your bills by mail until you have what you need. Then, switch back to paperless billing after closing.
#7 Gift letter
If someone is gifting you money for part or all of your down payment, then they will need to provide you with a gift letter. A gift letter is a note from this person stating that the money is a gift, not a loan, and is authorized by them.
In some cases, your realtor or lender will provide you with a template. If not, there are templates online that show you what information this gift letter needs to contain. Using gift money for your down payment isn’t always as straightforward as you might expect, so make sure you do your research and get the proper advice ahead of time.
#8 Documentation of additional liquid assets
For some people, their assets are about as straightforward as it gets. Think a checking account, a savings account, and a 401k. But for others, it’s not so simple. If you have invested your money in stocks, bonds, CDs, mutual funds, etc. then you may also need to verify these assets with additional documentation. If this is not your first home, then these are all going to be used to verify that you can pay your mortgage even in the case of financial emergency. This is called having a reserve.
Not only is having a reserve a good idea in case life throws some unexpected difficulties your way, but it can sometimes be required for a mortgage, as well. This is more common when you are purchasing a second home, or in the case of non-owner occupied investment properties. Reserve requirements will vary from bank to bank and loan to loan, but this is something that is definitely worth learning more about if you have investments.
#9 Proof of additional income
Finally, if you receive additional or alternative income such as disability, social security, pension, etc. then you will need to provide adequate documentation of this. These sources of income are frequently optional to report. However, listing them as income on your mortgage application can be beneficial for your debt to income ratio. Consult with a loan officer to help you determine whether reporting these additional sources of income is right for your unique situation.
There are some exceptions to the norm
You may find that as you begin the process of hunting for a home and getting pre-qualified for a mortgage, your realtor or loan officer may start talking about some documents we didn’t cover in this article.
This would definitely be the case if you are not a citizen of the United States. While non-citizens are able to purchase property in America, the process will look different. If you have only recently become a citizen, you may find it difficult or even impossible to get a mortgage until you have established yourself in America with steady income and employment.
Another example would be if you are an American citizen but do not have a social security number. While this can make applying for a mortgage more complicated, it is still possible to qualify. But again, your documentation will be different.
If you are concerned that your situation may require unusual documentation, make sure you work with a skilled realtor to discuss what you will need ahead of time. Don’t let yourself find that perfect house only to discover you don’t have what you need to buy it! Planning ahead will help ensure your dream home doesn’t slip through your fingers.
Don’t let yourself get too overwhelmed
And finally, don’t panic! Your realtor and loan officer will help you through the ins and outs of the documents needed for a mortgage. Good agents will also give you plenty of information on how to handle your finances in the months leading up to closing to make sure everything goes off without a hitch.
If you’re still looking to have more information before connecting with an agent, we have taken the time to put together a list of tips to help you prepare for your first home purchase. Go ahead and take a look. We feel sure your perfect home is just around the corner.