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The documents you will need to provide your mortgage provider will vary from mortgage program to mortgage program and may depend on such things as the size of your downpayment and/or how good your credit is. This Chapter will deal the different areas of your financial picture and what documents your lender may ask for. Note: please remember that each application will be considered on its own merit and that some applicants, due to a better or worse analysis, may have a different level of documentation required of them.
In a best case scenario you may only be required to provide one or two items and in a worse case you may need to provide most of the documentation detailed in this section.
Section One:
Documentation For Your Income & Earnings History
1) Your Earning History
Your lender will want to make sure that you have a stable income history for at least two years. This does not mean that you need to be at the same job for two years. Lenders understand that one may change jobs to better their employment. Only when someone has large number of employers in the past two years will red flags be raised. Another common reason to have a break in your 2 year work history is a job gap due to child care. It is common for people to take months or years off from work to stay at home to attend children.
In most cases if you do not have a 2 year history with one company you will simply need to write a letter explaining your job history for that period.Documents Needed:
- Your past two years W-2s
- Your past two years 1040s if you are self employed
- If applicable: Corporate, partnership or trust returns
- First Time Home Buyers will need to provide 3 years 1040s (this is only to prove that you have not owned property in the past 3 years)
In case of self-employment your lender will use a two year average of your income for qualification purposes.
If you are just out of college and do not have a 2 year work history you may use your years at school as a work history. In such a case you will need to supply a copy of your diploma or transcripts
2) Current Income
Salaried or Hourly Employees
While you needed to provide your previous W-2s and/or tax returns your lender, these items are to verify your work history, you will be qualified you on your current income.Documents Needed: your most recent paystub evidencing YTD earning.
Self-employed Borrowers
As explained above your lender will base your income on a two year average, however, they may also require you to provide a YTD P&L (profit and loss) statement. This may or may not have to be from an accountant.The income on the P&L will not be used for qualifying but is necessary to show that your current earnings are on pace with your two year average
Section 2: Down Payment Funds
You lender will require that you document your down payment. It may come from a number of sources and documentation of all of them may be required for the previous two month period.
A two month history of down payment funds is required as evidence that st least part of the funds our your funds and not all resulting from a gift. For most loan programs a minimum of 3% of the funds must be your own savings, the rest of which can be from a gift.
Down Payment Sources & Documentation
- Checking & Savings Account: Previous two months bank statement.
- Mutual Fund/ Investment Accounts: Previous two months or most recent quarterly statement.
- Gift: gift letter accompanied by proof of gift (either a copy of the check if already given, a copy of the gifters bank statement or letter from institution verifying the funds are available.
- 401K Loan: copy of your most recent quarterly statement and a copy of the check when issued.Trust Distribution: copy of check and verification of Trust availability (trust documents or letter from administrator).
- Sale of Property (home, car, or possession): Home- copy of HUD 1 when sold, copy of P&S (sales agreement) and copy of the check.
Regardless of the source of the funds they will eventually end up in your checking account in preparation for the closing. Your lender will require that you provide an accurate documentation of the money trail for the down payment funds.
It is important that once you've started the home purchase process that you start saving all the documentation associated with the transfer of and consolidation of funds. Copy such items as checks and deposit slips/ receipts, its much easier prior to the deposit than afterward when you need to wait for monthly statements. Your lender will require that you shoe where any large deposits to your accounts came from.
Section Three: Property Information
For purchases the following will be required:
Purchase & Sales Agreement (sales contract)
Copies of deposit checks
For Refinances
Copy of Deed
Copy of Tax Bill
Copy of Home Owners Insurance policy
Section Four: Previous Housing Expenses
Your lender will need to verify your previous two years housing payment history. Whether renting or paying a mortgage you will need to show evidence that you have paid your housing expense up to date and on time.
Rental History Documentation
Two items will document rental payment history: the first is a Rental Verification, this document is filled out by your landlord and provides evidence of payment history. In case in which one does not want their landlord to know they are looking for a house most lenders will wait until after the approval process is complete and the closing is imminent to send the rental verification to the landlord. The second piece of documentation that can attest to a good rental payment history is copies of your last 12 months canceled rent checks (front and back). While this option requires a little more work on your part it can be done up front and ensure more solid commitment letter.Mortgage History Documentation
Your lender will most likely be able to verify your mortgage payment history via your credit report. Lenders may request that you provide copies of your last 12 month mortgage payment checks (front and back) and the most recent statement from your lender as a substitute in case the credit report does not provide the necessary information .
In reviewing your housing payment history your lender will be looking to document that you do not have any 30-day late payments in the past 12 months. This will be critical to your obtaining the lowest mortgage rate possible.
Section Five: Miscellaneous Documentation
Condominium Documents
If you are purchasing condo or townhouse you will need to provide the following documents: Condo Questionnaire: detailing occupancy status, ownership, and future plans of the project
Master Deed
Declarations
By-Laws
Most recent budget
Master Insurance policy
Job Gap Letter
This letter will be required if any job gap has occurred in the past 2 years, it should detail the duration of any break in employment and the reason.
Credit Explanation Letter
If any derogatory information appears on your credit report you will need to provide a letter of explanation detailing the circumstances surrounding the negative information. If asked for a credit explanation do not panic, even for the most minor marks on your credit report your lender will require a written explanation. If you have concerns just ask your loan officer if your credit issues are serious.
Alternative Credit Documentation
If you do not have a least 4 items on your credit report your lender will ask you to document other forms of credit until they have a total of 4 satisfactory accounts. This means they require you to document your payment history for accounts that do not appear on your credit report. Examples of alternative credit are things like electric bills, cable T.V bills, auto insurance bills, phone bills, and other items that can document that you have a payment history. For each of these items you will either need to provide copies of the last 12 months canceled checks or a 12 month payment history from the company.
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