Mortgage lenders require a lot of paperwork to pre-approve you for a home loan. Gathering all this data beforehand is essential in avoiding delays and making the application process as seamless as possible.
In addition to income and asset verification, your lender will also assess your debt-to-income ratio (DTI) to guarantee you can afford your new monthly mortgage payment.
Mortgage Documents Required for Pre Approval
Pre-approving for a mortgage before you buy a house is essential as it demonstrates your seriousness about purchasing the property. Furthermore, it gives you leverage in an increasingly competitive market and increases the odds of obtaining the loan, helping to avoid higher interest rates and fees when finally purchasing your dream home.
Before finalizing your home purchase, it’s wise to shop around for lenders and obtain mortgage pre-approval from several different companies. Doing this will guarantee you get the most advantageous loan terms tailored towards your individual situation.
Documents necessary for mortgage pre-approval include bank statements, pay stubs, tax returns and credit reports.
Proof of Employment: Most mortgage lenders require a list of employers for the past two years (or longer). This list must include each employee’s name, address and phone number as well as their salary information, hours worked and vacation time taken.
Bank Statements: Make a copy of at least 60 days’ worth of bank statements for every account whose assets you plan to use for the mortgage, including checking, savings and money market accounts as well as IRAs, retirement and brokerage accounts.
Tax Returns: In addition to your W-2, most lenders require to see tax return transcripts from the IRS. These will detail your tax history for the last two years and help them assess your debt-to-income ratio.
Other Documents Needed:
Depending on the type of mortgage you apply for, the lender may request additional documents. These will vary from lender to lender but may be similar to those listed above.
Credit Information: Your debt-to-income ratio will likely influence loan approval, so lenders typically require credit reports from all three major bureaus. It’s wise to review your report prior to applying for mortgage preapproval so you can identify any errors or inaccuracies which could be negatively affecting your score.
Assets and Debts: Lenders typically want a thorough list of your assets, including stocks, bonds and investments; plus an accurate valuation for these investments. Furthermore, they will want to know how much debt you owe; thus, provide credit card and other debt statements from the past few months.
Other Documents Needed:
The mortgage documents needed to qualify for a mortgage vary from lender to lender, but most will require your social security number, legal name and copy of current driver’s license or passport. In most cases you can fill out the pre-approval application online or print it off and submit it in person at the lender.
Mortgage Application Documents Checklist
If you are in the process of applying for a home loan, your lender will likely need various documents. While this can seem intimidating, it’s essential to prepare ahead of time so that everything runs smoothly during application.
Additionally, keep a mortgage pre-approval checklist handy to make sure nothing important gets missed and/or you get stuck. This list can give you an outline of the requirements your lender requires; however, exact details may differ between lenders.
Proof of income and employment, such as pay stubs or tax returns, should be submitted to your lender in a timely manner. Doing this helps them verify that you are an honest borrower who can afford the payments on a new home.
Lenders typically review your pay stubs and bank statements to verify your income for the past two months. They also want to know how much money you have in savings, 401(k) accounts or other investments. If you are self-employed, they may request a business tax return as well.
Some lenders require a letter from your employer verifying the date and duration of your current job position. This can be especially beneficial if your income has significantly changed since you last provided payroll stubs or tax returns.
Additionally, you must provide your employer with a copy of any government-issued ID such as a driver’s license, passport or health card.
The lender must verify your residence history, which includes rent payments and other costs such as taxes and insurance.
Other documents you will need to supply include bank statements, credit reports, W-2 forms and your income tax returns. Organizing these documents in an organized fashion will make the mortgage process go more quickly.
Be prepared to explain any unusual or large deposits you’ve made recently that are not consistent with your regular income deposit activity. Doing so could affect your debt-to-income (DTI) ratio, which is an essential factor when it comes to deciding the size and interest rate for a mortgage.
Preparing for this process can be made easier by creating a list of all monthly bills you pay. Doing this allows your lender to know how much money you spend on these items, making them more likely to approve your home loan application.
Finally, make sure all of your tax documents are ready when applying for a mortgage. These should include two most recent W-2 forms, your most recently filed federal tax return and any state income tax returns.
Income Verification for Home Loan
Income verification is a critical element in the mortgage preapproval process. It guarantees you have enough income to cover your monthly mortgage payments without going into default, especially if you’ve recently changed careers or switched jobs. Income verification also serves to confirm if you can make your current employment payments without issue.
Additionally, lenders use debt-to-income (DTI) ratio to assess how much debt you owe other creditors, such as credit cards or car loans. If this ratio drops below 30%, your application is likely to be approved.
Lenders typically confirm your income by reaching out to your employer to review pay stubs, recent tax returns and other documents that demonstrate earnings. They may also request contracts or other records that demonstrate current employment status.
If you are self-employed, your lender may request a copy of your federal tax returns directly from the IRS. They may also require that you sign Form 4056-T, authorizing them to release these records.
Many lenders look at bonuses and commissions as a reliable source of income when reviewing an application. Typically, they require at least two years worth of these types of earnings for your application, taking an average from both sources.
Calculating your debt-to-income ratio (DTI) helps lenders estimate how much money is necessary to cover each month’s mortgage payments. It also assists them in assessing your ability to repay the loan, which is especially essential if you’re purchasing a home in an expensive market.
Due to advances in technology, automated verification is becoming more commonplace in mortgage lending. These digital solutions reduce origination times, expedite borrowers through the conversion funnel and enhance customer experience overall.
Innovative solutions also offer a secure user experience to reduce friction with borrowers and streamline the verification process. Finicity Lend, for instance, is one such mortgage verification solution that utilizes consumer-permissioned data to quickly and accurately verify income and employment statuses.
Finally, automation is a way for lenders to reduce manual processes and enhance their mortgage lending process. This is especially true when automation begins early in the loan procedure.
The top mortgage lenders take advantage of these verification technologies by applying them throughout every step of the loan origination process. Doing so guarantees that borrowers’ “ability to pay” is verified at each stage, which can prevent delays later and reduce closing times.