Documents You Need to Get a Mortgage

Thursday, March 1, 2018

Documents You Need to Get a Mortgage

If you're a first-time buyer you'll probably be shocked how much paperwork you really need to get a mortgage. For most people, this is it the biggest purchase you'll ever make, so it only makes sense that your lender wants to make sure they're not lending you more money than you're able to pay back. Before you start to feel overwhelmed, take a deep breath and use our checklist to help you see what you need and how to get it. 

Pay stubs

What is it?

Your paystubs show how much you got paid each pay period, how much of that went to taxes, health insurance, retirement savings, and any deductions. 

How do I get it?

You might get a physical copy or you might have access to digital ones via your company's HR portal. If you're not sure where you can find them, ask your HR department. 

Why do I need it? 

Your paystubs help your lender verify your income. Your lender needs to know this information so they can help determine how much you can afford to pay each month on your mortgage. 

W-2s or 1099s

What is it?

Your W-2 is a legal tax document that you use to file your taxes each year. It shows how much you made that year and how much you paid in taxes. If you're a contractor, freelancer, or self-employed then you'll have a 1099 instead of a W-2, but it should show the same type of information. You'll definitely need this information for at least the previous year of work, but you might end up needing to show W-2s for the past two years depending on your lender. 

How do I get it?

You may or may not have to provide these forms directly to your lender. Some lenders prefer to get them directly from the IRS. If that's the case, then they'll ask you to sign an IRS Form 4506-T which will allow them to request that information from the IRS. If you are responsible for providing the W-2s and you haven't saved them, you can contact your HR department and they should be able to help you get a copy. If that's not an option, you can contact the IRS and get a copy of all the documents you filed in your previous year's tax returns from the IRS. 

Why do I need it?

Your W-2s help your lender verify that amount of money you earn against the pay stubs you provided. 

Any additional income 

What is it?

Your income isn't always just what you make at your 9-to-5 job. Some people rely on child support to ensure their kids have everything they need, while others have a side hustle to help keep ahead of any unexpected bills. 

This includes:

  • Income from freelance work
  • Income from second, part-time jobs
  • Alimony
  • Child support payments

How do I get it?

If you're working a freelancer or in a part-time job, you'll likely have to go through the same process to provide your W-2 or 1099 to your lender as you would if it were your full-time job. If you're including child support payments or alimony, you might have to provide a copy of your divorce decree. If you don't have a copy in your records at home, you should be able to go to the local court where your divorce was finalized to get a copy. If the court can't help you, you can get a copy at the office of vital statistics in the county where your divorce was finalized. 

Why do I need it?

If you don't want or need your lender to consider your additional income, you don't necessarily need to include these documents. However, if you rely on that income to pay your mortgage, not including it might mean not getting the loan. That's because your lender will see that you won't be able to make your monthly payments with only the income you've provided. 

Bank statements

What is it?

Your monthly bank statements show inflow and outflow activity and help provide an accurate picture of your finances. 

How do I get it?

Your bank or credit union provides you with a monthly statement for each of your accounts. These should come either by mail, email, or be available online. 

Why do I need it?

It also shows that the money in your account has been consistent and reliable, as opposed to a lump sum gift from a friend or relative. Your lender needs to know all of that to make sure you're able to pay your mortgage each month. 

Last 2 years of tax returns

What is it?

Your tax returns are what you use to file your income taxes with the IRS. Once you finish filing your taxes, you should get a copy to keep for your records. 

How do I get it?

You might have those documents saved in a safe deposit box or on a hard drive. If you can't find them you can contact the IRS to get transcripts of your past returns. 

Why do I need it?

Your tax returns are another way your lender verifies you have had steady employment and income and that you'll be able to pay the loan. 

List of debts

What is it?

Your list of debts is a snapshot of all your monthly financial obligations. It should include:

  • Car loans
  • Student loans
  • Credit card debt
  • Mortgage loans
  • Personal loans 
  • Child support payments
  • Alimony 

How do I get it?

Try taking a look at your bank account and seeing what recurring payments are being taken out each month. If you don't participate in automatic payments, you can also keep track of each of your bills as they come in. 

Why do I need it?

Your lender will take a look at all of your debts to see if you're able to take on any new payments or if you're able to increase monthly payments. When your lender takes all your monthly debts and divides it by your monthly income they want the number to be under 43 percent. That number is called your debt-to-income ratio and it becomes very important when you're applying for a mortgage. 

List of assets

What is it?

The flip side of your list of debts is your list of assets. It should include:

  • Retirement accounts
  • Savings accounts
  • Stocks
  • Vehicles that you own outright
  • Other investment properties 
  • Other valuables (stamp or coin collections, expensive jewelry, etc.) 

How do I get it?

Many assets, like retirement and savings, reside in a bank, so you should be getting monthly statements the same way you would from your bank account. If your assets are property instead of cash, you'll need to be prepared with appraisal documents, and anything else that you'll need to prove the worth of your assets. 

Why do I need it?

Your assets help provide a complete picture of your financial health and will help prove that you're capable of handling your mortgage payments. 

Credit report

What is it?

Your credit report is kind of like a scorecard of how well you pay you've paid your debts in the past. A high score indicates that you have experience borrowing money and that you have a history of paying that money back both on time and in full. A lower score can indicate either you don't have experience borrowing money or you haven't traditionally paid that money back on time. 

How do I get it?

You can check your own credit score once a year at each of the three major credit bureaus at annualcreditreport.com, but most lenders would prefer to handle the inquiry themselves. They'll ask you to fill out a form that gives them permission to pull your report. If you're planning on shopping around for lender that can get you the best rate, be sure you time it so they're all looking at your credit report at the same time. Whenever a potential lender inquires about your credit, you'll see a small, negative impact to your score because it's clear that you're thinking about taking on new debts. But, if all those inquiries happen within the same 45-day window, the credit bureaus count it all as one inquiry because they understand you're just shopping around to save money. 

Why do I need it?

Lenders take this number pretty seriously and use it to set your interest rates. A higher score shows your lender you're less of a liability, so you'll likely get a lower interest rate and vice versa. 

Ready to apply for your mortgage?

Apply today