The mortgage loan process is pretty messy! It’s easy to forget an important document when you’re busy looking at houses and figuring out which one best suits your needs and budget.
If you’re a list person, then you appreciate the value of keeping track of your items. We’ve made it easy by giving you a detailed checklist of key documents you can expect to collect, see, or sign for your loan. Follow the list, and you’ll save yourself a lot of headaches and make the mortgage loan process a lot smoother.
You’ll sign your loan application for the final time at closing. It’ll be your chance to double-check that you’ve dotted your i’s and crossed your t’s, and everything is in order. It’s a good idea to walk through it one final time with your lender so they can answer any questions you have.
You’ll need to prove your identity to the lender by providing a copy of a government-issued ID, such as a driver’s license, state ID card, or U.S. passport.
Proof of income
Depending on your type of employment, you’ll need to show different documents to demonstrate your proof of income and ability to afford the mortgage loan you’re signing for the house you’re buying.
If you’re a full-time employee, have your W2 forms handy. You may be able to use the W2 your employer provided for you during the last tax season, or you may need to request new ones. Current W2s are recommended if it’s been several months since your lender last saw them, or if you’ve gotten a raise or new job since the previous W2 was issued.
A 1099 form is the tax form that contract workers receive from businesses.
If you have 1099s from multiple clients, make sure you have them all handy. Every client that pays you more than $600 in a calendar year is legally obligated to issue you a 1099, so make sure you have them all in order; they represent your legal earnings.
If you operate your own business (or collect multiple 1099 forms), then you may be asked to provide a profit-and-loss statement for the previous year as part of your proof of income.
Businesses have expenses, which eat into how much you take home and have available to spend on a mortgage. If you earned $100,000 on your 1099s but spent $50,000 on expenses, you’ve effectively only earned $50,000, and your mortgage lender will want to know that.
Past two years of tax returns
Your tax returns for the past two years will show the lender whether your income fluctuates wildly or is steady.
If you’ve recently gotten a new job with a higher salary, have a copy of your offer letter and start date from human resources (HR) to share with your lender.
Kelly Hollowell, a single-family home expert who works with many US Navy officers in Chesapeake, Virginia, explains that when her clients get a higher pay rate, they need to show a document called an LEF.
“In our world, that would be ‘can we talk to your human resources department and have confirmation that you’re getting this new job where you make $50,000 more per year?’”
Gather your pay stubs for the last 30 days, if you’re a full-time (W2) employee. These stubs show lenders what your cash flow currently looks like after taxes.
If you’re working overtime, make sure that your pay stubs accurately reflect your entire income, including that overtime. If they don’t automatically include overtime, ask your HR department to provide you with documentation of your entire income, not just your regular hourly rate.
If you collected more than one month of unemployment benefits in the past two years, you’ll need to show documentation explaining why and how much. These documents will include letters of explanation for gaps in your working life and unemployment income transcripts showing how much unemployment you collected and when.
Real estate income
If you earn real estate income, your lender will expect to see it listed in your provided tax returns. If you just started earning real estate income and it’s not yet been taxed, then you may not be able to use it to qualify for a mortgage.
As Richie Helali, mortgage sales leader at HomeLight Loans explains “You have to actually report the income. If you had income from a property in the previous tax year, that has to be recorded on the taxes.”
Child support/alimony income
If you pay or collect child support or any alimony income, you’ll need to provide the documentation of it, which will generally be in your divorce decree.
Any other income
Any sources of income that don’t fit into the categories above should also be documented as part of your proof of income. This can include:
Each source of income may require its own paperwork, so check with your lender what documentation you may need for that income type.
Down payment details
Your lender will want to know some details about where the funds for your down payment have come from — whether it’s wholly your income, includes gifts from others, or any assistance programs.
Source of down payment
Your lender will want to know where your down payment is coming from. They will verify the accounts it will come from and how long it has been in those accounts to ensure it’s not coming from illegal or inappropriate sources.
Gift letters from friends or family
Your mortgage lender will want to know if you’ve been gifted any portion of your down payment from family or friends. Not all loan types allow gift funds to be used as part of your down payment, so double-check with your lender before you accept these gifts.
Paperwork from assistance programs
Similarly, if you’ve qualified for any down payment assistance programs, your mortgage lender will want to know the details around how much the program is helping and the terms of the program to ensure you are compliant.
More financial details about your assets and debts
In addition to seeing your proof of income, lenders will want to have an understanding of your assets. Having little to no assets before applying for a mortgage can be risky because you lack a safety net if something goes wrong.
Meeting these reserve requirements shows lenders that you will be able to cover your mortgage payments for several months, even in an emergency, and therefore are unlikely to default on the loan. Lenders will look first at ready cash in checking and savings accounts, but some lenders may allow you to include assets in investment and retirement accounts if those assets can be easily liquidated in the case of an emergency.
They will also consider your current and previous debts that resulted in foreclosures or bankruptcies. Lenders will generally want to see any of the following types of paperwork that apply to your situation.
Your bank statements will be one of the first things lenders look at to determine your cash reserves as these accounts contain your most liquid assets. Lenders will want at least the past two months of bank statements, possibly more, to prove your cash reserves are available consistently rather than the result of a recent cash infusion that may ultimately be spent elsewhere.
Retirement account statements
If you plan to use your 401(k) or other retirement accounts to help support your cash reserve requirements, lenders will expect to see your most recent quarterly statement.
While IRAs are technically retirement accounts, their statement cycles are generally monthly instead of quarterly. If your IRA statements come monthly, confirm with your lender that they want to see the last two statements from your IRA.
Brokerage account statements
Lenders will often want to see the past two months of statements from any brokerage accounts you have that are being used to support your asset requirements as part of your mortgage loan.
Lenders will pull your credit report directly as part of the loan process, so before you apply for a mortgage, you should also take a look at your credit report. You can do so for free from all three major credit reporting companies — Equifax, Experian, and TransUnion — once per year.
Pull your credit report from all three companies before you apply for a mortgage. This will give you a chance to check for and correct any errors before they can impact your mortgage loan application.
Smaller issues like court judgments can also result in not getting your mortgage approved. As Hollowell has experienced with clients:
“When you don’t appear in court for tickets, multiple tickets sometimes and if you have disregarded the parking ticket police and not paid those, they will come back, and you have to clear up those debts.”
Debts and expenses
To calculate your debt-to-income ratio or DTI, lenders will look at your recurring debts relative to your monthly income. This will tell them whether you can afford to repay the mortgage you are applying for.
Recurring debts can include:
- Student loans
- Child support or alimony payments
- Credit cards and other lines of credit
- Car payments
If you’ve filed for Chapter 7 or 11 bankruptcy, you’ll need to observe a three- to four-year waiting period before being eligible to secure a mortgage. In special circumstances, that waiting period can decrease to two years.
Chapter 13 bankruptcy requires a two-year waiting period from discharge or four years from dismissal. If you’ve filed for bankruptcy more than twice in the previous seven-year period, you’ll need to wait five years. Have all of your bankruptcy paperwork handy, and be ready to provide it to your lender upon request.
Your lender may ask for divorce paperwork to confirm that liabilities and assets in both names are settled. Divorce paperwork may also be used to confirm extenuating circumstances that may prevent you from meeting financial obligations.
Foreclosures result in a seven-year waiting period before you are eligible for a new mortgage. Documentation of certain extenuating circumstances can reduce that period to three years if you meet other criteria.
Charge-offs, pre-foreclosure sales, and deed-in-lieu of foreclosure are foreclosure alternatives that have a shorter, four-year waiting period. Foreclosure information will be available on your credit report that lenders will be pulling, so have your foreclosure paperwork ready when they ask for it.
Documents from your lender
Your lender will provide the following closing documents, which you should read closely and fully understand before signing your mortgage.
Your Loan Estimate will give you an idea of what your mortgage will look like so you can confirm the details of the loan make sense for you before proceeding. This document has three main sections:
- Loan terms
- Payment schedule
- Closing costs
The Closing Disclosure outlines the details of your loan. It is similar to the Loan Estimate but includes more accurate information, including the:
- Monthly mortgage payment
- Estimated interest rate
- Estimated tax and insurance costs
- Scheduled payment or rate changes
- Estimated closing costs
- Any applicable penalties (including prepayment penalties) you should be aware of
The primary difference between the Loan Estimate and the Closing Disclosure is that the Closing Disclosure should have your final fees and charges, not just estimates.
Documents you will need to close
To close on your dream home, you’ll need a few more documents.
Proof of homeowners insurance
Your homeowners insurance needs to be purchased before closing. A quote will not suffice because your new home will serve as collateral for the mortgage loan, and your lender will want to make sure the house is fully insured and the home’s value is protected, should anything happen.
Make sure you read the promissory note (also called the mortgage note) carefully before signing it as it is your acknowledgment that you understand and commit to taking on the financial responsibility of the loan.
Deed of trust or mortgage contract
The name of this document varies by state, but regardless of the name, it serves as your agreement to put the home up as collateral for the loan. If you default on the mortgage, the lender can repossess your property.
These documents cover who has previously owned the home and confirm there are no liens on the property. Title documents often include title insurance, which will protect you in the event that the title search failed to uncover an existing lien.
The deed legally transfers ownership of the home to you. It will be signed by the seller and sent to the county or city recorder after closing.
You’ll be expected to sign affidavits that confirm your legal name and identity.
Transfer of tax
Some states require buyers to sign paperwork that discloses the price of the home and how much sales tax you owe.
Certificate of occupancy
Bill of sale
You should verify any items previously agreed to be included in the sale are listed on the bill of sale, which is a legal document certifying the transfer ownership of any listed item from the seller to the buyer as part of the home purchase. This can include anything from furniture to appliances.
Riders are addendums to your security instrument that clarify any additional terms being added to the standard mortgage or deed of trust. They are usually part of the closing package when buying certain property types, such as planned units or condos, or when you choose an adjustable-rate mortgage product.
Got all your documents together? You’re ready to get a mortgage loan!
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