Get a Head Start: Documents Needed to Apply for a Mortgage

Compiling all the documents you need is one of the most stressful aspects of applying for a mortgage. The sheer amount of time this takes can really drag out the loan application process. But you can be prepared by gathering the most important documents you’ll need together now to make the mortgage application process easier.

Income Verification

Underwriters first verify that your income stream can afford the monthly payments associated with the loan amount. That makes income verification one of the most important parts of a mortgage application. This includes several documents. If you are self-employed, you must show your income through something like a 1099 form, tax return, or a direct deposit. A profit and loss statement and a list of your business debts will also help a lender understand your financial situation. It helps your case if you have been self-employed for at least two years.

If another party employs you, W-2s and pay stubs should do the trick. You’ll want the pay stubs to go back at least 30 days and W-2 forms to go back at least two years. These documents show your lender that your financial situation is stable.

Tax Returns

Tax return documents give your lender a complete picture of your financial situation. You should expect to sign Form 4506-T, which allows the lender to ask the IRS for a copy of your tax returns. Most lenders will want two years’ worth of returns when applying for a mortgage.

Bank Statements

If you have investments, your lender will need to know about them. This shows you have adequate savings to help you with your down payment and mortgage payments. Lenders want to see what you currently have in your accounts, including insurance and life insurance assets.

Alimony and Child Support

Employment may not be your only source of money. If you’re receiving alimony or child support, you must show the lender documents proving this. Alimony and child support payments could be the difference between getting and not getting your mortgage approved. And if you’re the payee, it part of calculating your debt-to-income ratio.

Credit Documents

The lender will usually request a credit report. To do so, they will need your permission, sometimes in writing. If you have a bad credit history, such as a short sale, late payments, or foreclosure, be prepared to explain in writing what happened and how your financial situation has changed.

This aims to make the lender feel better about the risk of lending to you. If you have a bankruptcy in your past, you will need bankruptcy/discharge papers. For multiple bankruptcies, you’ll need one document for each.

Renting History

If you’ve only rented up until now, showing that you’ve paid your rent on time is a great way to show your reliability to your lender. Provide your lender with documents showing your renting history as evidence that you have consistently made on-time payments.

Gift Letters

Sometimes your loved ones may want to help you purchase your home. The lender will need a gift letter explaining they are gifting you funds for a down payment. They should include their relationship to your and confirmation that the money is merely a gift and does not need to be paid back.

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