Documentation Requirements For A Mortgage

A client told me that he was due to be a father any day now and was having a baby girl. He told me that he hoped she turned out to be a good credit risk and could be able to get a mortgage as an adult. It made me laugh that he made this joke about the boring mortgage industry, and it made me realize how ludicrous the mortgage rules have become. Not only are people wondering if they can get a loan as an adult, they are beginning to wonder if their unborn child will get a mortgage well into the future. I joked back with him:

“Make sure you keep all of the baby’s awards, school grades, vaccination records, pay records from side jobs like mowing lawns, records of gold stars in elementary school for attendance, records of how she spends her allowances, special interests and career goals. That combined with tax returns, bank statements and pay stubs as an adult, and then yes, we can possibly have enough documentation to give her a mortgage someday in the future.”

In reality, the documentation list to apply for a mortgage can seem lengthy. To help you out, below is the checklist I send clients that want to get a mortgage. Believe it or not, this is only a basic checklist. There could be many different permutations of additional paperwork requests that result from the material below.

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INCOME DOCUMENTATION IF SALARIED:

Copies of your most recent W-2 forms from the last two years.

Copies of two of your most recent pay stubs: The pay stubs must clearly show the pay period and it must identify the name and social security number of the applicant. Send in updated pay stubs as you get them. (If there are any deductions on the pay stub for a loan, that loan will have to be counted towards the debt ratio. If there are any deductions on the pay stub that go towards the deposit of a 401k or some other asset account, a copy of a recent bank statement to show that asset is needed.)

Copies of tax returns from the last two years. All pages of each return are needed. The tax returns must be signed & dated in ink at the bottom of the page where you would normally sign on the bottom of the 2nd page.

A name and phone number are needed for a “verbal verification of employment.” The processor is required to call a supervisor or human resources person to verify employment.

INCOME DOCUMENTATION IF SELF-EMPLOYED:

Copies of tax returns from last two years.

All pages of each return needed if you are self-employed, commissioned, or using dividend & interest income to qualify, or if you own rental property.

The tax returns must be signed & dated in ink at the bottom of the page where you would normally sign on the bottom of the 2nd page.

The tax returns must be signed & dated in ink at the bottom of the page where you would normally sign on the bottom of the 2nd page.

Corporate tax returns will be needed as well as personal returns if you own over 25% of a company.

By the same token, if you own more than 25% of a Partnership, complete Partnership returns from last two years as well as complete individual returns are needed. The Partnership returns should have the K-1 forms attached.

Profit & Loss statement through most recent month (only if self-employed or commissioned). A P&L shows gross income, then expenses, then net income from the start of the year through the most recent month. The Profit & Loss Statement must be signed by the preparer (the preparer can be you, or your accountant).

ASSET DOCUMENTATION:

Bank Statements

Copy of 2 most recent consecutive bank statements

• If any of the bank statements show deposits that are not payroll deposits, the source of those deposits should be documented (for example: gifts, inheritance, transfer of $ from another account, liquidation of stocks, etc.). Fannie Mae and Freddie Mac require a full paper trail on where these deposits originated, copies of checks, deposit slips, etc.
• If any of the bank statements have more than one page, a copy of all pages (even if the other pages don’t show anything important or are blank) are needed. Depending on how long the transaction takes, you may need to send in updated statements as you get them.

Investment Statements

Copy of the 2 most recent statements (or one most recent quarterly statement) on any other assets (like stocks, CDs, 401k, IRA, etc.).

• If these assets are going to be liquidated or borrowed against, evidence of that is needed, as well as evidence of the deposit of the funds into the new account (such as deposit slips and copies of the check).
• If any of the bank statements have more than one page, a copy of all pages, even if the other pages don’t show anything important or are blank, are needed. Depending on how long the transaction takes you may need to send in updated statements as you get them.

If a gift is given toward the purchase of the home, the following documentation is required:

Completed gift letter (ask lender for a sample gift letter).

Evidence of “donor’s ability” to give the gift (a recent bank statement from the donor).

Evidence that the gift has been transferred out of the donor’s account (may be on the same bank statement above, or a subsequent one).

Evidence of receipt of the gift (a deposit slip or bank statement), or the gift giver may provide a copy of a certified/cashier’s check including their name and account number. In the case of a certified/cashier’s check, “donor’s ability” is not needed.

OTHER DOCUMENTATION:

Do not make any large purchases, open a new credit card account, pay down a large amount of debt, or make any large financial changes after loan application.

If a job change is imminent please advise your lender. Any sudden financial moves may cause a problem.

A legible copy of all pages of the sales contract signed by seller & buyer including all addenda.

If you derive income from Retirement or Social Security, you need evidence of receipt of this income. Provide copy of three months bank statements with all pages of each statement, showing direct deposit of this income.

A copy of the canceled deposit check that you submit with the sales contract is needed. You need to show a copy of the front & back of the check once the check has cleared. Instead of the canceled check you can get a copy of the front of the check from the Realtor, combined with a copy of the bank statement showing the check cleared.

A copy of a current lease on all rental properties owned. If there is no current lease and the tenant is just renting month to month you can get what is called a “tenant letter.” The tenant must write a letter stating they are currently your tenant, how much they are renting for, and the address of the property they are renting. This letter must be signed by the tenant.

A copy of a car title if a car is owned free & clear and is less than 4 years old.

Copy of all pages of a Divorce Decree and Separation Agreement if divorced or separated.

Name, address, and daytime phone number of all landlords over the past 2 years (unless you have been a homeowner over the last 2 years, then this information would not be needed).

If you have had several jobs (three or more) in the last two years, you should provide a “job history letter” explaining the job path you have taken over the last several years. You can also use a current resume instead of writing this letter.

If the borrower is not a U.S. citizen please send a copy of any Visa or Permanent Resident Card (a.k.a. green card).

If the property is to be placed in a Trust, copies of all pages of the trust agreement will be required.

If any borrower will be out of town for settlement, please advise lender in advance and discuss getting a Specific Power of Attorney for someone else to sign the closing documents for the buyer.

If the property is a condominium lenders require a condo questionnaire to be completed, and most property management companies charge a fee to complete this, which can range anywhere from $25 to $250. The lender will alert you as to what this fee is, and collect it from you later. The lender will need the name and contact information for the property manager of the condominium.

AT SETTLEMENT:

A cashiers check for the amount due, payable to the title company.

Your personal checkbook in case there is a small shortage in the amount you owe, if the cashiers check is not enough to cover the amount due.

A valid photo ID, such as a drivers license, green card and/or passport.

THE END? No, there is usually more!