If you’ve decided to buy a home, it’s good to know what you need for an efficient start. A mortgage lender requires specific paperwork to verify how much you can borrow. They peek into every aspect of your financial life, including your income, assets, debts and more.
Here is a basic checklist of documents you should gather before sitting down with a mortgage lender, along with some mortgage terms you should know.
- Recent paycheck stubs.
- Most recent federal tax return, and possibly tax returns from the prior two returns.
- W-2 forms from the previous two years.
- Profit and loss statements or 1099 forms, if you are self-employed.
- A complete list of your debts and your minimum monthly payments and balances.
- List of your assets, including bank statements, car titles, real estate titles, mutual fund statements, brokerage statements and records of any of your other investments or assets.
- Canceled checks, possibly up to a year for your rent or mortgage payments.
- Proof of homeowners’ insurance (required for closing).
Your debt-to-income ratio is rather important. This means your total amount of debt, including credit cards, other mortgages, car and student loans and medical debt, per month divided by your total monthly income. A low debt-to-income ratio guarantees you are a safe bet for the lender. An ideal number is below 35 percent with 25 percent being a good goal. Obviously, 0 percent is perfect. However, that is unrealistic for most households. So if you make $4,000 a month and your debt is $1,300 a month, your debt-to-income ratio is about 33 percent.
Proof of Ability to Pay
The lender may ask for 12 months of canceled rent checks if you don’t own the home you live in or bank statements for your mortgage to show it was paid on time.
The lender will check your credit report so if there are any discrepancies or late payments you should call those companies and see if they will remove them or write a letter to your lender if you otherwise have paid on time. At this time, it’s best not to close any accounts as that can affect your credit report with the lender. Scour your credit report and get it as clean as possible before sitting down with a lender.
If you’ve recently received income that was a gift, you’ll need proof that the unexplained funds are not a loan. The lender will require a letter from the person or company that gifted or granted you the money. It is possible the lender may ask for bank statements if the gift was provided by a family member or friend.
If child support is included as income, you’ll need to bring proof of the child’s age and possibly a divorce decree if applicable.
It might seem daunting, but it’s a relatively simple exchange. If you have forgotten anything, the lender will request more documentation, in which case you should provide it to them promptly. Be prepared to provide updated documentation, such as recent pay stubs, as you move along the home-buying process. With all your paperwork in order, the faster you’ll be approved for a loan and get to move into your new home!