Lenders request a great deal of paperwork from applicants to support their mortgage applications. They require documentation that proves such things as how much money an applicant earns and how much outstanding debt they have.
The exact documents that mortgage lenders require when a person applies for a mortgage loan depends on their situation, e.g., the kinds of bank and retirement accounts they may have.
For example, someone who is self-employed may have to provide different forms, and possibly more of them, than someone who receives a monthly salary from a company. A person who is self-employed may have to provide a Year-to-date profit and loss statement and balance sheet for their business.
If a person is ready to dive into homeownership, they might be wondering what to do next. There is a lot to do before a person is ready to start shopping for new furniture. Knowing what to expect and what steps to take can make the homeownership process much easier and less confusing. Real estate brokers may play a role as a person usually needs a broker or real estate agent to help them in their search for the right property.
When a person actually enters into a mortgage loan agreement, they find that there are many more documents to review. Most of them are required by federal and state real estate laws. The mortgage loan documents a person can expect to see as part of a real estate transaction are as follows:
- Good Faith Estimate: This is a statement of the estimated costs a person has to pay before they close the purchase of real property;
- Housing and Urban Development (HUD) Special Info Booklet: This is a publication from the federal government that provides independent information about the home-buying process;
- Truth in Lending Disclosure Statement (TILA): This is information about the price that a person pays to borrow money. Federal law requires that it be provided to mortgage loan borrowers;
- Broker Agreement: This is a contract about the terms of finding a loan with a broker;
- Loan Approval/Commitment: This is the contract that comprises the loan agreement itself;
- Settlement Statement (also referred to as “HUD-1”): This is a list of all closing costs and loan disbursements.
In addition, in order to qualify for a mortgage loan, an applicant must submit quite a bit of documentation to a prospective mortgage lender to verify information about their financial status. Some of the kinds of documents that a person can expect to have to produce are as follows:
- Tax returns: As noted above, mortgage lenders want tax returns to get the full and accurate story about a person’s financial situation. A person may have to sign Form 4506-T, which allows a lender to get a copy of their tax returns from the federal Internal Revenue Service (IRS).
- Lenders typically want to look at two years’ worth of tax returns to make sure a person’s annual income is consistent with the earnings that the person reports. They also want to know that the person’s income is stable and does not fluctuate from year to year;
- Proof of income: Lenders may ask to see a person’s pay stubs from the past month or more so they have a clear view of the person’s current earnings. A mortgage lender may also ask to see a person’s W-2.
- A person may be self-employed or have other sources of income, such as child support payments. If so, they may be required to show their lender proof of this income through IRS 1099 forms, direct deposits, bank statements, or other means;
- Proof of Accounts: A lender usually also wants to see bank statements and statements of other accounts that a person may have, e.g., 401K accounts, annuities, and other kinds of investment accounts. Again, a lender has to verify a person’s wealth.
- Specifically, today, most mortgage lenders require a down payment of 20% of the purchase price of a property. At the very least, the lender wants to see proof of the fact that a borrower is in possession of this amount and that it is available to fund a down payment.
A person may have to produce copies of these documents more than once. If a person’s search for the right property lasts for more than six months, a lender may request updated copies of these documents.
