Now that you’ve been preapproved and have a ratified contract, the next steps of the process are to submit your mortgage documents to your lender as quickly as possible. This is an essential step in order to keep your closing deadline on course.
When verifying the income of a borrower, a lender is looking for financial stability. Lenders will require you to provide the last two forms of income verification:
- W-2s from current and past employers. Your mortgage lender will most likely ask for the past two years of W-2s per applicant. If you don’t have copies, you can ask your employer, or the IRS may have a copy of the documents submitted for tax returns. If there is a gap within the last two years, a written explanation may be required.
- Pay stubs. These will be needed to show how much you’ve earned detailing a 30-day history and may require your employer to sign them. If there is another type of payment, such as overtime compensation, you will need to show documentation for those as well.
- Income tax returns. These will be checked for the past two to three years to see the income reported as well as deductions claimed. The lender may ask you to provide copies of your returns, and a signed Form 4506-T, giving a lender access to your tax transcript directly from the IRS.
- 1099’s from Self-employed, freelancers, or independent contractors. If self-employed, you will need to provide some additional documents. This includes two to three years of federal tax returns (personal and business), profit-and-loss statements, list of business debts, and the Form 1099s used to report income and file taxes.
- Alimony or child support. Provide documentation if applicable, typically a divorce decree, detailing payments and schedule.
Assets and Debts
To calculate your debt-to-income ratio, a lender will need to check your debt obligations to ensure you have enough money to cover a down payment and closing costs on your mortgage. Additional documents may also be needed:
- Bank statements. To verify your income, your lender will ask to see two to three months of bank statements, savings balances, and the source of your down payment.
- Retirement and investment accounts. Any investment accounts listed on your loan application (retirement accounts, 401(k)s, stock investments, certificates of deposit) will need two to three months’ worth of statements.
- Gift letter (if using gift funds). Some loan programs will allow you to use gift funds to cover a down payment. If someone plans on giving you money for this purpose, they will need to sign a gift form confirming they do not expect money back. The lender may ask for a copy of the donor’s bank statements to see where the money originated.
- Additional property documentation. Some examples may include investment property, second home or a vacation home.
Your lender will ask permission to pull your credit report. Once your credit report has been reviewed, your lender will discuss with you the potential loan program you qualify for. To learn more about credit check out our article All About Credit
- Rent. If you are currently renting you will need to provide your lender with your landlords contact information so that we can verify your rental history.
- Bankruptcy/Foreclosure. If this is on your credit history, speak with your lender for your next steps.
- Non-citizens. Your lender will require proof of residency or immigration status and request copies of corresponding documents to see which loan programs you best qualify for.
Need more help to prep for a mortgage or want to get started? Contact a mortgage advisor today to discuss personalized options that fit your needs!