Mortgage lenders tend to require extensive documentation. It isn't uncommon for mortgage application files to balloon to more than 100 pages in length by the time all of the requested documentation has been received. With that in mind, here's a quick guide to the types of documentation you might need to produce when you're applying for a home loan.
What documents are required for a mortgage preapproval?
Before you start shopping for real estate, it's a smart idea to get a mortgage-preapproval. While you can certainly shop for a home and make offers without a mortgage preapproval, getting preapproved lets you know that you're able to get financing up to a certain amount and also lets sellers know that you're a serious buyer.
A preapproval (not to be confused with a pre-qualification) involves going through the entire mortgage approval process when it comes to your personal qualifications. Your credit will be checked, and your employment, income, and assets will be verified.
With that in mind, here's a list of documents your lender might require to process your mortgage preapproval application. Note that this is not an exhaustive list, and not every item will apply to every borrower. Also keep in mind that your lender may want to see certain other documents, especially if any unique situations apply.
- Tax returns: In order to analyze your debt-to-income ratio (DTI ratio), which is one of the main qualifications for a home loan, a lender will need to see documentation of your income. For starters, most lenders want to see your last two years' tax returns. If you haven't yet filed a tax return for the most recent calendar year, your lender might request that you do so before applying. And if you live in a state with an income tax, the lender will likely want to see both your federal and state returns.
- W-2s or 1099s: If you are an employee, your lender will want to see your two most recent W-2 forms. If you are self-employed, the lender will need your two most recent 1099s and may also request additional income documentation. (Note: In general, the documentation requirements are more extensive for self-employed applicants.)
- Pay stubs: Employees should be prepared to submit (at a minimum) their two most recent payroll stubs. This can be an especially important piece of documentation if your income has changed significantly since submitting your most recent tax return.
- Other income documentation: If you have income from other sources that you would like to have considered by the lender, such as rental income or Social Security income, be prepared to show documents (in addition to your tax return) that verify them.
- Bank statements: Lenders will typically request two months' worth of statements for any checking or savings accounts you have. Be prepared to write brief explanation letters for any unusual deposits, bounced checks, or anything other than standard transactions. As a personal example, at the time I applied for my first mortgage I was renting a condo with a roommate, who gave me cash to cover his share of the rent each month. So, my lender requested that I (and my roommate) sign a statement confirming the source of these recurring $700 cash deposits.
- Gift letters: Lenders have very specific rules about where the funds for your down payment and closing costs can come from. Most lenders allow for gifts but don't allow you to borrow the money from a relative or friend. So, if you're receiving some of your down payment from another individual, they'll need to sign a letter confirming the funds are indeed a gift with no expectation of repayment.
- Investment account statements: Just like with your bank accounts, you'll need to produce two months' worth of statements for every investment or brokerage account you have, including retirement accounts. If you only receive quarterly statements for certain accounts, your most recent statement should be sufficient.
- Other assets: If you have other assets that could help you qualify for the mortgage or that you plan to use toward the down payment, be prepared to document them and their current market value. For example, if you own a rental property, submitting proof of ownership and a recent appraisal could be sufficient.
- Current mortgage statement: If you own a home and currently have a mortgage balance, you'll likely need to submit your most recent statement showing how much you still owe on the home. This is especially true if you'd like the ability to close on your new home before you sell the old one.
- Landlord information: If you're currently a renter, you'll need to provide contact information for your landlord, as well as documentation (such as canceled checks) showing that you've paid rent.
- Social Security card: A lender will need to run a credit check on you in order to view your credit report and credit score and make a decision about your application. In order to do this, they'll need your Social Security number, and every lender I've dealt with has requested a copy of my actual Social Security card.
- Driver's license or other ID: Expect your lender to request a copy of your driver's license or other photo ID (such as a U.S. passport) as part of the application process.
What documents are needed for a purchase mortgage application?
After you get preapproved and find a home, you'll need to formally apply for the mortgage. While a preapproval is a commitment to lend based on your qualifications, there's still the matter of making sure the property you want to buy meets the lender's requirements.
So, there are some other documents you might need when you apply for a mortgage to purchase a specific home. And it's also important to keep in mind that if you didn't get preapproved before you started shopping, these documents are in addition to those listed in the previous section.
- Details about the home: Most details about the home you intend to buy will be included on the lender's purchase application, but you might have to submit certain other documents as well.
- Proof of insurance: Before you can close on a mortgage, the lender will want confirmation that you have obtained sufficient insurance. In most cases, this means a standard homeowners policy, but certain properties require others. For example, when I bought a home in South Florida, my lender required that I obtain flood insurance and windstorm insurance in addition to standard homeowners.
- Appraisal: This is generally done behind the scenes, meaning that your lender orders it directly, but your lender will want an appraisal on the home that confirms it's worth at least as much as you've agreed to pay for it.
- Flood insurance declaration: This is another documentation request that is usually made directly by the lender on your behalf, but the lender will need to know whether your property is in a flood zone, and if it is, how likely a major flood is.
What documents are needed for a mortgage refinancing?
Refinancing your mortgage can be a slightly different application process than obtaining a purchase mortgage. However, the documentation requirements are very similar. You'll still need to produce proof of income, employment, and assets. And you'll still need to document certain things about the home itself, such as proof of insurance and an appraisal that confirms its value.
In a nutshell, this guide should apply equally well to a refinancing mortgage as it does to a purchase mortgage.
Expect additional requests before closing
As a final thought, it's important to mention that just because your lender doesn't request a certain document initially doesn't mean that they won't need it at some other point throughout the process. For example, if your lender goes through your bank statements and sees an unexplained cash deposit, you may need to submit a letter explaining the details. And there are some documents that you're likely to need when your closing date approaches, such as documentation of an insurance policy on the property.
The bottom line is that there is a lot of documentation your mortgage lender might request, both before your application and while you're waiting to close. By preparing your documentation ahead of time, you can help ensure that the process will go as quickly and smoothly as possible.
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