It used to be possible to borrow vast amounts of money to buy a home with almost no documentation. But since borrowers who can’t prove their income are more likely to default, the banking industry has become much more careful about who can borrow money-which means even very strong buyers have to supply stacks and stacks of documents to prove they’re worthy.
If you’re applying for a mortgage, you can expect your lender to ask you for most of the items on this list-and perhaps even more if your situation is at all unusual.
1. Tax Returns: The lender wants to be reasonably sure that your paycheck is high enough to allow you to meet the mortgage payments every month. They feel more confident if your salary has been relatively stable for the past few years. That’s why most lenders will ask to see tax returns going back at least two years. If your income has jumped recently, the lender may want additional documentation to assure them that it wasn’t just a one-time windfall, like a bonus that is unlikely to be repeated.
2. Pay Stubs: The tax returns prove what you income was last year and the year before, but your recent pay stubs tell the lender that you’re still earning the same amount.
3. Other Proof of Income: What if you don’t have pay stubs, or if your pay stubs only tell part of the story? If you’re self employed, receive child support, or have another source of income that isn’t through an employer, expect to provide even more documentation. 1099 forms, copies of checks, and bank statements showing direct deposits all help to show the bank your income is reliable.
4. Employment Letters: A letter from your employer confirming your hire date, current employment status and salary will go a long way toward comforting a nervous lender. This is a fairly standard piece of documentation, and there are plenty of samples online. Employment letters can also explain gaps in employment, such as time off without pay for the birth of a child. Your employer should explain why you took the time off, and verify that your return to work is permanent.
5. Proof of Funds: Now that the lender is reasonably sure you’re gainfully employed, they’ll want to verify that you have the money to cover the down payment and closing costs. They also want to know that you won’t be totally broke after the purchase, and that you have the money to weather a reasonable emergency. Statements from your bank and investment company will usually do the trick. Again, you’ll need statements going back a few months. If you’ve recently received a big check recently, such as a gift from your family to help with a down payment, the lender may require you to supply a letter from the person who gave you the money explaining that it’s a gift and you won’t be required to pay it back.
6. Photo ID: That’s right-the lender wants to make sure you are who you say you are. A copy of your driver’s license is usually sufficient.
These are some of the standard pieces of documentation your lender may require, but they will supply you with a complete list. So go ahead and start shopping for a loan!