Documents Needed to Apply for a Mortgage
Getting prequalified for a mortgage is a quick and easy process that doesn’t require much documentation. However, applying for an actual mortgage loan is a bit more complex and will require tangible proof to estimate your income and assets in order to verify that you can comfortably afford the mortgage you’re applying for.
To provide this proof, you’ll need to supply a number of documents. Here’s a quick overview of what will be needed during the process.
Proof of Income
Before a loan can be issued, you’ll need to provide documentation supporting that you would be able to manage your monthly payments. A basic rule of thumb is that your total monthly mortgage payment – principal, income, taxes, and interest – should be no more than 28 percent of your income.
To provide income verification, you’ll need specific supporting documents, such as:
- Pay Stubs. To show income from work for the past 30 days, you will typically need to provide two of your most recent pay stubs, if you are on a bi-weekly payment schedule.
- W-2 Statements. To prove you have a steady income, you’ll need W-2 forms from the past two years. Your employer may be called to verify that these are accurate.
- Income from Self-Employment. If you’re self-employed, read this article about applying for a mortgage as a self-employed borrower.
- Tax Returns. It’s common for income to come from sources other than work, such as interest or investments. To show this other income, you’ll need to supply your tax returns for the past two years. Self-employed borrowers should provide both, business and personal, tax returns.
- Proof of Other Income. If you have other sources of income, you will be required to send those in as well. For instance, it might be a proof of a pension, Social Security or disability benefits, dividend statements, child support, or alimony.
- Bank Statements. Finally, you’ll need to supply the most recent statements for your bank accounts, both checking and savings. This will back up the other documents by showing all deposits into your account.
Documentation of Debts
You can’t use your income to pay your mortgage if that income is all tied up in debt payments. That’s why, in addition to your income, you’ll need to show how much you owe and how much that debt costs you per month.
To show this, statements for any debt you make regular payments on will be needed. This may include:
- Credit cards
- Student loans
- Auto loans
- Personal loans
Proof of Assets
Emergencies, such as a job loss or a major medical problem that prevents you from working, can interfere with your income. To know that you’ll be able to keep making payments if this happens, you’ll need to provide proof of your assets – that is, how much money you have in reserve.
In particular, this should include your liquid assets: holdings that are either in cash or easy to convert to cash if needed, which can be used to pay the mortgage in an emergency. Other assets, such as property, cars, artwork, or jewelry, aren’t as easy to liquidate if the need arises. It’s good to have at least six months’ worth of income saved in your account – enough to get you through a temporary financial crisis.
Here are some examples of liquid assets you’ll need to provide documentation for:
- Checking and Savings Accounts. You will be requested to show not just how much is in your accounts currently, but how much you’ve kept in them over the past two months.
- This includes certificates of deposit (CDs), stocks, bonds, and mutual funds.
- Retirement Funds. This includes workplace retirement funds, such as a 401(k), and personal funds, such as an Individual Retirement Account (IRA).
- Gift Funds. If someone, such as your parents, has given you a gift of money to help you buy a house, you’ll need a letter from them to confirm that the money was a gift and not just a loan. This letter should include their relationship to you as well as the amount of the gift.
Making the Process Easier
This may sound like an awful lot of paperwork to provide, but there are ways to make the process easier. Ethos Lending lets you upload all of your documents online, from the convenience of your own home.
Finally, remember that while this process can be tedious, it’s necessary to make sure you get a manageable mortgage for your financial situation. It’s better to spend a few hours on paperwork now to ensure you’re getting into a sustainable arrangement.
Ethos Lending is a new type of mortgage lender. We use technology to keep our operational costs as low as possible. From closing costs to interest rates, we have made it our mission to make the process of buying a home more affordable. Get in touch with one of our mortgage specialists to learn more.