Applying for a mortgage may seem like a complex process – and perhaps you aren’t sure where to begin. The best thing you can do is find a great lender who will be there to walk you through each step. One of the initial things your lender will ask you to do is gather required financial documentation for your application. It’s important to plan ahead and set aside enough time for this, since you’ll need to have all of this info available before your lender can truly begin the mortgage process.
No matter how big of a mortgage you hope to obtain, proving your credit-worthiness is key. Your lender will need to see an accurate record of your finances that highlights your income, borrowing history, assets, debts and other pertinent information that will help determine the amount you are eligible to borrow. Read on to find out what information you’ll need in order to apply for a mortgage.
Your lender will ask you to provide pay stubs and W-2 forms to show how you’ll afford your monthly mortgage payment. Many will also ask for your tax return for the past two years, simply to see the big picture of your earnings that shows income stability.
If you have any additional forms of income that you’d like to include, such as social security payments or child support/alimony payments, you’ll have to show specific documentation highlighting these items.
If you’re self-employed and don’t have pay stubs or W-2’s to share with your lender, you’ll need to provide additional documentation – information that may go beyond what W-2 employees need to provide. Generally, your lender will want to see your tax returns for the past two years, which allows him or her to verify that your income has been steady.
If you own rental property, your lender will also request the past two years’ worth of tax returns to view a record of profit and loss. Fortunately, income from a rental property can be a big help when it comes to obtaining a mortgage and securing the best loan terms.
Make sure you’re properly reporting your rental expenses, income, and losses on your taxes in order to use this information on your mortgage application.
In many cases, you’ll need to have cash set aside for a down payment on your new home. Fortunately, you may be able to put down less than 20%, especially if you opt for a government loan – which might help you breathe a sigh of relief if you don’t have a significant amount of cash ready to put down. The following are types of assets that may be used to fund your down payment:
A big factor that goes into the mortgage application process is the review of your credit and payment history.
Before approving you to borrow a large sum of money, your mortgage lender will want to confirm that you have a history of making on-time payments.
Your credit report will be a key part of this review, but your lender may also ask you for additional documentation, such as canceled rent or mortgage checks, bankruptcy discharge paperwork or proof of paid collections or judgments.
Sometimes, the standard documents that lenders require don’t show the full picture of your financial situation. If that’s the case, your lender may ask you for other pertinent information, such as an explanation of a credit report discrepancy. The more information you can provide your lender up front decreases the likelihood of facing a delay in the process of reviewing your financial background. If you’re unsure whether you should include additional documentation, be sure to check with your lender.
These requirements, though stringent, aren’t meant to be a burden for borrowers. In fact, a big reason they exist is to protect you and ensure you make an educated buying decision. After all, your lender wants to make sure you don’t spend more than you’re comfortable with so you can enjoy the benefits of being a homeowner.
If you have questions about the mortgage process, speak with one of our mortgage bankers.