Documents You Need Before Applying for a Home Loan

What documents are part of the mortgage process?

As a result of the 2008 financial crisis, before approving loans mortgage lenders need to verify that borrowers can afford to make their monthly mortgage payments. In January 2014 the Ability to Pay Rule went into effect. This act has brought several changes in how mortgages are granted.  Mortgage lenders expect you to provide a full set of documentation verifying your financial and personal life. Your lender may require more or less documents, but here are the general guidelines to help you prepare:

• Borrower Identification

Section 326 of the USA Patriot Act requires financial institutions to implement a Customer Identification Program (CIP). Because of the fraud and money laundering activities, lenders thoroughly verify who they are lending to.

It is the responsibility of the mortgage originator to verify the identity of each borrower at the time of loan application. In addition, the underwriter has to make sure that the sources of identity verification are satisfactory for each case.

If you want to get a mortgage loan, your Social Security Number (SSN) needs to be validated, in order to tie the number to the individual possessing that number. You will be asked to provide the following:

• Your photo ID driver’s license or identification card
• If you have co-borrowers they also have to provide ID.

However, there have been reported frequent discrepancies within the third-party SSN validation companies that lenders use. If this is the case do not despair, all is not lost. You can use other identity documents such as:

• Your birth certificate – this document meets the federal identity standards and can be used by mortgage lenders.
• Voter registration card
• Passport

Residential history

• Your residential address for the past two years
• Your landlord names and addresses for the last two years

Personal assets

• Bank account statements for the last two months for all checking and savings accounts. You can request these statements from your bank. Alternatively, if you have access to online banking you can even print them yourself. In addition, you might have to provide copies of all your retirement and/or investment accounts.
• Any other asset statements from the past two months for CDs, IRAs, stocks, bonds or other securities you intend to use for your down payment
• Current real estate holdings including property address, current market value, mortgage lender’s name and address, loan account number, balance and monthly payment

 Employment and income history

• Paycheck stubs from the last 30 days showing your year-to-date earnings
• Full tax returns from the last two years
• Your mortgage lender will ask you to provide W-2 or I-9 tax forms (issued by your employer) for the past two years. These documents will help them verify that your household income was consistent. They will be looking if your household income has significantly fluctuated from year to year. You can request a copy of your past returns by filling out Form 4506, Request for Copy of Tax Return, from the IRS.
• If you are self-employed the lender may ask you to provide copies of your last two years of federal income tax returns (both individual returns and in certain cases, business returns) that were filed with the IRS for the past two years. In addition, you will be asked to provide copies of your 1099 forms from the IRS to your lender. As all clients that pay you at least $600 in a given year are required to send you a 1099 form, mortgage lenders use copies of these forms to check how much money you were paid as an independent contractor.

Personal debt

Your mortgage lender will also want to know how much you owe. Therefore, you will need to list all your debts, along with your monthly payments. For this you will have to disclose any new monthly debts not listed on your credit report. If you have just contracted any type of loan specify the creditor name, address, account number, minimum monthly payment amount as well as outstanding balance on each account.  Remember to bring accompanying documentation for these loans. The lender needs this information to determine your debt-to-income ratio.

Gift letter

If a family member or friend will give you gift money to help with your home purchase, you’ll need to document it. The donor will probably have to prove that he or she has the resources to make the gift. They can do this by providing bank statements.

Your lender will require documents proving that the money is in fact a gift, not a loan. You will have to bring copies of several months of bank and brokerage statements, and letters from gift-givers and grant makers.