Before the housing crisis and the subsequent Great Recession, many mortgage lenders did not require full requirements from borrowers. Fast forward to today, lenders are more cautious (rightfully so) and now want to know as much as they can about your finances before even considering approving your application.
Your job is to provide lenders with all the documents they need to get a clear view of your capacity to pay back your home loan. Gathering the necessary paperwork to paint that picture for them is one of the most tiring parts of the mortgage process, and it starts with knowing what you need to put together. Here are a few things lenders will expect.
1. Proof of Income
A lender’s primary concern is your ability to pay back the amount loaned to you. You’re going to need to prove you have a stable source and history income through some form of documentation. For this purpose, you should have your Form W2 and tax returns from the previous year as well as your most recent pay stub.
If you’re going for a larger loan or have an “interesting” income history, you may want to have other documents ready. Self-employed individuals, for example, would need to show profit and loss statements from their businesses.
2. Other Sources of Income
Of course, there are ways to make money outside of a regular job. For these sources of income, you’re going to have to present specific document.
- First off, prepare your Form 1099, which is the IRS tax form to report types of income that do not come as wages, salaries, and tips.
- If you receive alimony or child support, a lender may want to see a copy of your divorce decree.
- Those who earn money from renting out their properties would have to show a lender a copy of their lease agreement.
A notable trend among young homebuyers today is the presence of stock options in their employment packages. If you’re one of these types, a lender would likely ask for a copy of your employment contract with details pertaining to your shares.
3. Assets
Most lenders are going to want a complete picture of your financial status and background to ensure that you have enough saved should you encounter any surprise expenses after you close on the house.
For this, you’ll want to prepare a full inventory of your assets. This would include your:
- Bank statements
- Real estate title
- Car owner’s registration
- Investment records
- Retirement accounts
4. Debts
It is possible and not unusual for an individual to have seemingly impressive income all the while paying off disproportionately large debts. This is why lenders may ask for a thorough list of all your debts including other yet-unpaid loans, active credit cards, and even ongoing alimony and child support payments.
Keep in mind that your goal is to impress your prospective lender and show that you have the capacity to fully repay your loan. If you would like to learn more about mortgage requirements, get in touch with mortgage advisor Chris Lamm to discuss the mortgage process as well as other things you should know when embarking on your journey to homeownership. Call our offices at 530-282-1166 to schedule a consultation.