Most people enjoy getting a new mortgage loan about as much as the proverbial “pulling teeth.” Today, mortgages are even more complicated than ever before, but many of the critical components that lead to a loan approval are still the same as they were in the past.
A purchase money loan or a refinance have essentially all of the same working parts. Even so, the paperwork requirement and never ending requests from the lender can be overwhelming. This process has not become any easier but there are steps that can be taken to reduce stress and make the process as efficient as possible. Chances are that the loan officer will provide a list of documents that are required. Most of the common items on the required list include:
Two-year employment history (tax returns, W2s, 1099s, etc.)
- Current pay stubs
- Application (1003)
- Identification (Driver’s License or State-issued ID cards)
- Insurance declarations page for the home securing the loan (agent’s name and contact)
- Current mortgage statement (if refinance)
- Tax bill/assessment for the property securing the loan
Be prepared to provide all pages of the two most recent taxes returns. If your income is simple, this should be an easy task. If you have self-employment income (Schedule C), there may be 1099 to document the source of the income. If you own a rental property or have an interest in a business, be prepared to answer questions that may arise. For rental property, have a copy of the property insurance declarations page (which should indicate the physical address of the property and the annual cost of the insurance) and the tax bill. Most cities and counties have property tax records online or provide the most recent tax bill. It is likely that you may be asked to provide a copy of the current lease for the property.
Unusual items on the tax returns will likely generate additional questions. For example, if the returns show gambling winnings and losses, rest assured that will get noticed. If you have other sources of income that are outside of your job, it is best to be proactive and write a brief statement about the nature of the income.
Make copies of all the most recent and past two years W2s for everyone that is on the loan application, even if you don’t work for one of the companies anymore. Print out copies of the past 30 days of pay stubs. If there are fluctuations, such as overtime or bonuses, a brief written statement is appropriate to make.
The standard mortgage application is called a “1003,” which is the form number. Its real name is the “Uniform Residential Loan Application.” Some lenders will provide you with a copy of the application for you to complete. If applying online, the data that you enter will populate into the appropriate fields in the application. Use your favorite search engine to find a copy of the application (search “1003” or “Uniform Residential Loan Application”). Understanding the fields on the application will help make the online application process flow smoother and reduce stress points during the application. Additionally, a completed blueprint will be helpful to avoid a timeout of the web application.
Make copies of the past two months’ bank statements for checking and savings, especially the account from which any down payment funds are currently parked. This piece is critical. If you are purchasing a new home and are relying on funds in your savings, you should have those funds in the savings account at least 60 days prior to the statements. If the statements show a large deposit, you will have to provide an explanation and document the deposit. This means that you will have to produce a copy of the deposit (the check that was deposited into your account) and write an explanation of the source of those funds. Are the funds from a relative? Get a “gift letter” from that person, signed and dated, that states the funds are a gift and that there are no loans associated with the gift.
The mortgage lender will require all of the pages of bank and investment (retirement) statements. All pages must be included in the package, even if one page is blank. If there are fees for bouncing checks, you may want to consider waiting another month. This activity will raise red flags. Likewise, deposits that are not payroll related will require written explanations. For example, the $200 cash sale of the old sofa last weekend, and subsequent deposit of that cash, will likely trigger an underwriter’s request for more information. These kinds of things can add layers of stress to any already stressful procedure.
When planning to refinance or buy a new home, it is best not to apply for any other kind of credit, despite any temptation to do so. Retail stores and other shopping venues often provide incentives such as discounts for the store-issued credit cards. This can change into a disincentive when underwriters suspect that new credit has been obtained that may not be fully disclosed on the application or in the credit report.
It is not always easy to predict the questions that will arise in the process, but a well-documented loan application package, especially one that anticipates any obvious issues, will speed the process and hopefully reduce headaches along the way.