Prior to funding a mortgage – What are the documents needed for mortgage approval?
Shopping for a home is an exciting and fun process, but for serious homebuyers, the process needs to start in a lender’s office, not in an open house. In this era, most sellers expect buyers to have pre-approval letters to begin the negotiation process and prove they can obtain financing for their home.
The first task is to determine where you stand financially and how much you can afford. Potential buyers need five essential things; proof of assets and income, good credit, employment verification, acceptable debt ratios and proper down payment.
Your lender will assess your financial health, and you’ll be responsible for supplying these documents to your lender to apply for a home loan.
The Cain Mortgage Team are here to help educate our clients to making smart decisions, read more below.
Here are the documents needed for mortgage Approval
Image License: Creative Commons 3 – CC BY-SA 3.0 Attribution: Pixabay – https://pixabay.com/
Record of Income and employment
The documents required to verify your income vary depending on how you get paid. This process is easier for workers with a stable paycheck coming from one source and who have minor changes from month to month. You’ll need copies of your two most recent W2’s (possibly your two most recent federal tax returns) and two of your most recent payroll stubs. If income includes overtime, bonuses, or commission, you may need additional information to confirm consistency over a 2-year period.
For self-employed or independent contractors, the process may be a little lengthier. Lenders want to ensure the stability of the borrower’s income, location and nature of the business, and the company’s financial strength. A year-to-date profit and loss statement, two years of Tax Returns, including all 1099’s and all schedules of your tax returns. You might be required to provide additional documents to showcase the stability of your earnings. If you have rental income, make sure to include the related schedule of your tax returns.
All Assets and Down payment information
Most loans require a down payment and the source of these funds will need to be verified. Eligible sources of down payment can be money in your checking and savings account, 401K, investment accounts and money borrowed against an eligible asset. The down payment is a key component of loan approval and the money has to confirmed it is from an eligible source and has been in your account for at least 60 days, unless the large deposits were from an eligible source.
The borrower will need to send full bank statements, retirement, investment, or brokerage account statements for two months. This will prove to lenders that they have the funds for a down payment, closing costs, and additional costs.
Any proceeds from your current home that you’ve recently sold must be given to the lender, including a copy of the Settlement Statement from the real estate transaction. If your funds include a gift from an eligible family member, you’ll need to provide a Gift Letter signed by the donor and proof the donor has the funds available.
Credit history and total debt
Lenders examine your payment obligations to calculate your debt to income ratio. Debt such as student loans, auto loans, real estate, and credit cards are all taken into account. Lenders require a middle score of 620 or higher to approve a conventional loan. Applicants with lower scores will need to look at other loan options, may need a larger down payment, and will have higher interest rates.
Any personal information that affects your ability to repay your mortgage will be requested, such as bankruptcy discharge papers, divorce agreements or rental agreements. Some mortgage companies may also ask for an itemized list of monthly payments for certain types of income to get an accurate portrait of the consistency.
Keep in mind, most underwriting guidelines are standard across all Lenders and the required documentation should be similar between Lenders. Additionally, while some documents may seem unnecessary to the client, there is a very good reason behind every requested document. If you don’t understand the reasoning, always ask the Lender to explain so this can reduce frustration.
Consulting with a lender before house shopping saves a lot of heartaches later. Gather the pertinent documentation and submit it promptly. The more detailed your data, the more you can streamline the process and reduce frustration.
Contact us today to get started with the right mortgage at the best rate!