In 2000, less forms were required to obtain a mortgage than now, in 2020 – by far. It seems that in the years before the great recession, it was pretty simple to get approved for a mortgage, which led to borrowers not being thoroughly vetted, which was a huge factor in the recession. Mortgage lenders certainly learned their lesson, and now, creditors will much more thoroughly assess a potential borrower’s ability to repay their loans. This means, to the stress and dismay of many wishful mortgagees, more paperwork to be done.
What forms you will be required to give are half standard, and half dependent on your situation. For example, every mortgage applicant will be required to offer proof of identity, but not everyone will be required to show proof of self employment (as not everyone is self employed). Your mortgage lender or mortgage broker will be able to give you a much better idea of what documents you’ll be asked to provide. Here are the documents you’ll certainly need, as well as some you may or may not need.
To get all the details on your financial situation, your mortgage lender is going to want a copy of all of your tax paperwork. You’ll almost certainly be required to sign a form called “Form 4506-T”, which lets the IRS know that you have permitted your mortgage lender to request a copy of your tax returns. You’ll likely be asked to show at least two years of tax returns, or more if your financial history is considered a “special case”. Having your tax paperwork allows your mortgage lender to make sure your annual income is consistent with your pay stubs. In their mind, if you can’t pay your taxes, how do they know you’ll pay your mortgage loan back?
Pay Stubs (or Other Proof of Income)
If you are employed, you’ll be asked to provide your pay stubs from the last few months. Your pay stubs will be compared to your tax paperwork in order to make sure everything makes sense in that department. Then your pay stubs will be used to gauge your current earnings. Knowing what you make allows your mortgage lender to make an educated decision on how much money they’re going to lend to you. They don’t want to give you more than you can pay back within reason. Your pay stubs also act as proof of employment, and reassures the mortgage lender that you’ll be able to repay your mortgage.
Self Employment Proof of Income
If you don’t get pay stubs or you are self employed, you’ll have more documents to produce – and even more if you are “paid under the table”. Other sources of income such as child support will also be submitted here. You will need to offer your lender proof of these incomes with 1099 forms, direct deposits, bank statements, or other means. It’s the mortgage lender’s job to do their due diligence on you – and if your employment or income situation is unique, they will have a little more work on their hands in order to perform their job properly.
They’ll ask for your permission first (as is law), but your credit report is going to be checked out by your mortgage lender, too. You’ll have to explain any blemishes, such as a foreclosure or a bill sent to collections. Typically this is done by way of you writing up a report with an explanation of why the ding on your credit is there. It can work in your favor, because lenders may be willing to look over a one-time screw up or unavoidable circumstance if you explain things to them. Otherwise, they are forced to assume that any ding on your credit is due to habitual delinquency.
It’s almost certain that lenders will also want to check out your bank statements. They don’t care that you spent $50 at the grocery last Tuesday – what they’re looking for is whether or not you have enough cash stuffed away to cover a few months of the mortgage payment if you lose your job or get laid off. They also want to make sure that your down payment money didn’t just mysteriously show up in your bank account yesterday – they want to see the history of it’s buildup, and that it has been in your account for at least a few weeks, if not a few months. You will likely be asked to provide five to six months of bank statements, with nothing blacked out.
Assets (If Any)
Have a car? What about an insurance policy? Do you have a stash of cold hard cash under your mattress, or stocks, or gold in your safety deposit box? Your mortgage lender wants to know about that, and will ask you to write up a report naming all of your assets and what they’re worth in today’s terms (not when you bought or obtained them). This is because your mortgage lender wants to know you have other ways to pay for your mortgage if your source of income falls through. Could you sell off your stocks and support yourself for a few months while you got back on your feet? That’s an asset. Report it to your mortgage lender – it will benefit your mortgage application.
Bankruptcy and Foreclosure
Have you been an unfortunate victim of bankruptcy or foreclosure? If so, you should first ask your lender how long you should wait to re-enter the mortgage market. If you have had a bankruptcy, your lender will want proof that your debts have been discharged and are no longer outstanding. If you have had a foreclosure, you might have to wait seven years before you’re eligible for a new mortgage, and you will likely have to show proof that the property deed was transferred.
Have your friends or family given you any monetary donations toward your new house? You’ll have to report that to your mortgage lender. All you need is a letter, preferably signed by both you and the gift giver(s), stating their relationship to you, that they gave you money for use on your home purchase, how much they gave you, and that it was, in fact, just a gift, and not payment of any kind for services or jobs you performed for them. Your mortgage lender wants to make sure you can focus entirely on repaying the loan you took out from them, and that you aren’t trying to balance your mortgage payment with paying back mom and dad in addition.
This one is probably the most obvious, but you’ll be required to show a government issued photo ID when you apply to buy a house. You can use a passport, a driver’s license, an ID card, or more. This just proves that you are who you’re claiming to be, and gives your mortgage lender a little peace of mind. If you’re in the process of getting your identification, you can ask your mortgage lender what he or she thinks is the best way to go about things. You may be able to offer up the paper temporary copies of your ID, or you may be asked to wait until the official copies come in.
Rental History Documentation
If you don’t already own a home, your mortgage lender will want to see copies of your rental history. It shows them proof that you can pay a monthly housing cost on time. This will likely be asked for in the form of at least a year’s worth of rent check copies. Your mortgage lender may also just ask for contact information for your old landlords – then ask them directly to provide the documentation they need to show you paid your rent on time. If you don’t have an extensive credit history, it’s almost certain that your rental history will be looked into, as it’s then the only way your mortgage lender can prove you’ll pay them back for their loan.
Retirement and Investment Accounts
Do you have any retirement or investment accounts? You’ll have to supply two to three month’s worth of statements from any of these accounts that you listed on the loan application. That includes retirement accounts, 401(k)s, stock investments, and certificates of deposit. Even if the page is blank, submit it anyway!
Divorce can be a big factor in huge financial life changes, so if you’ve been through one, you’ll need to provide paperwork on it. Obtain a copy of your divorce decree, which shows whether or not you have to make child support or alimony payments. If you do, you’ll have to provide paperwork on those things, as well, including how much per month you must pay and to whom.
It is the job of your lender to assess you as a borrower. Because of that, you’ll have to provide them with the necessary documents to paint the accurate picture of your creditworthiness.