Once upon a time, you could get approved for a mortgage with virtually no documentation, but those times are long gone. Because borrowers who can’t prove their income are likely to default on a mortgage, the banking industry has become far more selective about who they will approve for a mortgage. The current approval process requires even the strongest of buyers to supply stacks of documents to prove that they are worthy of a loan. If you are in the process of applying for a mortgage, be prepared to supply at least the following six documents.
Lenders want to be reasonably sure that you earn enough to allow you to meet monthly mortgage payments, and they feel even more confident if your salary has been relatively steady for the past few years. For this reason, many lenders will ask for tax returns from the past two years. Additionally, if your income increased significantly recently, your lender may ask for additional documentation to determine whether the rise was due to a one-time windfall, like a bonus at work or a gift from a family member that is unlikely to be repeated.
The tax returns you supply prove what your income was last year and the year before that, but your lender will also want to be sure that you are still earning that amount by checking recent pay stubs.
Other Proof of Income
In the event that you don’t have pay stubs, or that the pay stubs don’t reflect your full income, you’ll be expected to provide additional documentation. For instance, if you are self-employed, receive child support or have another source of income that isn’t through an employer (like rent payments), you can expect to provide copies of checks, bank statements showing direct deposits and 1099 forms.
If you can provide a letter from your employer stating your hire date, current employment status and salary, you may be able to comfort a nervous lender. Employment letters are fairly standard pieces of documentation, and you can find plenty of samples online if you need a guide. An employment letter can be especially helpful in explaining any gaps in employment, like maternity leave after the birth of a child. Ask your employer to explain why you took time off and to assure the lender that your return to work is permanent.
Proof of Funds
Once your lender is reasonably sure that you are employed, they will want to verify that you have sufficient funds to cover the down payment and closing costs. In addition, lenders will also want to know that you aren’t going to be completely destitute after these payments and that you have a reasonable sum of money set aside to weather any emergencies. To give your lender this peace of mind, you will need to supply statements from your bank and investment company. Once again, you will need statements that are recent and that go back a few months. If you have recently received a big check, like a gift from a family member, you may be required to submit a document from the person who gave you the money stating that it is a gift and you are not required to pay the money back.
One of the simplest, yet most crucial pieces of documentation, you will need to be able to prove that you are who you say you are. Generally, all your lender will need is a copy of a current driver’s license.
Typically, these are the most important pieces of information that your lender will ask for, but don’t be surprised if you have to supply more documentation. It may feel like a pain, but proving your income and ability to pay results in you getting the mortgage you deserve. Your lender will supply you with a complete list of the paperwork they need, so start gathering your documents, then start house shopping.