Documents Needed
When applying for a home loan, you will typically need to provide the following documents:
- Proof of income: This can include tax returns, W-2s, and other documents that show your income and employment history.
- Gift Letters: If you are receiving a gift of money from a loved one to use as a down payment on a home, you will need to provide a gift letter to prove that the money is not a loan that needs to be repaid. If the money were considered a loan, it could increase your debt-to-income ratio, potentially making it harder for you to pay back your home loan.
Some loans have specific restrictions on who can give you a gift of money. For instance, conventional loans generally only allow gifts from family members, although Fannie Mae also allows gifts from godparents, domestic partners, and former relatives. FHA loans permit gifts from a wider range of sources, including employers, labor unions, first-time home buyer programs, and most family members.
A gift letter will typically include the following:
- The donor’s name, contact information, and relationship to the recipient should be included.
- recipient’s basic informations like full name and active contact information
- The gift amount and the exact date of when was the gift or will be received
- State clearly how the recipient will use the gift money
- A statement confirming that the gift does not need to be repaid
- Signatures of the donor and recipient must be clearly indicated
- Pay Stubs: Your most recent pay stubs can be used to verify your monthly income and employment. If you are paid with a physical check, you should have the actual pay stub that can be copied and sent to the lender. If you are paid through direct deposit, your company should have electronic copies of your pay stubs, which you may also be able to request from your bank.
- Proof of assets: You will need to provide documentation of your bank statements, investment account statements, investments, and other assets that can be used as collateral for the loan. Learn more about why assets are significant to consider when applying for a home loan.
- Proof of identification: The mortgage lenders will always want to make sure that you are who you say you are, so a proper government-issued identification document will be needed. Plus a photo is needed in that document, such as driver’s license or ID card, your passport, Social Security Card, etc.
- Social Security Card: This is an identification that might be asked by your lender. It helps matching your Social Security number with a picture ID that you have to really help confirm that it is you who is getting the loan.
- List of Monthly Debts: Your debt-to-income ratio (DTI) is a measure used by lenders to determine if you can handle additional debt. It compares the amount of money you have coming into the amount you have going out. Different types of mortgage loans have maximum DTI levels for approval. If your DTI exceeds the maximum for the loan you are applying for, you may not be approved for the mortgage.
Your lender will request a list of your fixed debts, which are those that are regularly occurring and require a minimum payment. Examples of fixed debts may include:
- Rent or mortgage
- Car loans
- Credit cards
- Student loans
- Personal loans
- Home insurance
- Medical bills
- Homeowners association (HOA) fees
Your DTI does not take into account monthly, variable expenses such as utilities, groceries, entertainment, and transportation, which may fluctuate from month to month. When providing a list of debts to your lender, be sure to include the creditor’s name and contact information, the total balance due, and the required minimum monthly payment.
- Rental Information And Landlord References: This is a clever way of showing that you are responsible enough and capable enough to pay your monthly rent which shows the lenders that they can be assured you’ll be able to do the monthly mortgage payment as well. It might also be required for you to mention the names and the contact information of the owner’s or the landlords you had recently. This would help verify that they didn’t have any problems with you when it comes to your financial responsibilities as a tenant. It does depend on the lender though on how far back you need to show payments.
- Bank Statement: This is definitely a must to help you obtain being pre-approved since it shows your income and shows that you are capable of doing down payments. Although this is one of the best ways to show proof of income, it may also uncover any red flags that you may have, such as bounced checks, unstable income, insufficient funds, and large deposits from unknown sources.
It is most likely they will ask for the last 2 to 3 months for your checking and saving account numbers and statements for each bank you may have used.
- Credit history: Your lender will want to see your credit score and credit history, which you can typically obtain from a credit bureau or credit reporting agency. Learn how bad credit can affect your chance to get approved for a home loan and on how credit repair works.
A credit report is a document that provides information about your credit history and creditworthiness. Your lender will obtain a copy of your credit report with your permission as part of the mortgage pre-approval process. The credit report can give the lender an idea of how you handle different types of debt and whether there are any red flags, such as late or missed payments, significant debts, or a past bankruptcy. The lender will use your credit report to determine the mortgage rate for your loan and the amount that they will approve you for. It is a good idea to review your credit score before applying for a mortgage to ensure that you are in a good position to qualify for a loan and to identify and correct any errors that may be present.
- Property documents: If you have already found a property you wish to purchase, you will need to provide documents related to the property, such as the sales contract, title report, and appraisals.
- Tax Documents: Certain tax documents, including your two most recent W-2 forms, are also required for mortgage pre-approval. These documents help to verify your income and show how much was withheld for taxes. You may be asked to provide W-2s for the last two years from your current and previous employers.
If you are missing some of your tax returns or W-2s, you may be able to request copies from the IRS or from the tax preparer or tax software you used to file your taxes. It is a good idea to keep copies of these documents for your own records.
- Any other documentation requested by the lender: This can vary depending on the lender and your specific circumstances, but may include things like proof of insurance, homeowner association fees, or other information relevant to your loan application.
It’s important to gather all of these documents before applying for a home loan, as they will be necessary to complete the loan process.
