Getting Your Docs in a Row: What You Need to Apply for a Mortgage

If new home buyers were asked to rank their favorite part of the home-buying process, it is likely that applying for a mortgage would fall to the bottom of the list. The mortgage process can be long and frustrating, particularly if a buyer is not prepared. In fact, some buyers may even say that they dread the mortgage process.

With a little knowledge about mortgages and what documentation is needed to apply for one, buyers can take some of the stress and anxiety out of the mortgage approval process.

Here is a guide to items that most lenders will require for mortgage approval:

Something in Writing

First and foremost, a lender needs to see a buyer’s purchase contract. If there is no contract, there is no need for a mortgage, right?

If a buyer is refinancing or applying for a new mortgage on a current home, lenders will want to see a copy of the deed for the home.

A Face to the Buyer’s Name

Typically, two forms of identification are needed for a lender to verify just who is applying for a mortgage. A driver’s license or state-issued I.D. is usually sufficient as the first form of identification, while a passport or social security card are commonly accepted forms of secondary identification. A mortgage applicant’s I.D. will tell a lender their current address; but, if they have moved within the past two years, applicants also need to provide their former addresses for that time as well.

Some Other Names, Too

If a buyer is renting their home at the time they apply for a mortgage, they likely will need to supply the name and contact information of their current landlord. If a buyer is working with an attorney, it may be necessary to supply their name and contact information as well.

The Financial Game of Twos

When it comes to financial information that must be submitted to lenders for mortgage approval, it seems there is a rule of “twos.” Most lenders want to see:

• 2 most recent pay stubs for each person listed on the mortgage application
• 2 months’ worth of bank and investment statements
• 2 years’ worth of W2s that explain applicants’ employment and earnings
• 2 years’ worth of signed federal income tax returns

With financial documentation, mortgage lenders sometimes require explanations for monies that have been deposited as proof of assets. For instance, if a mortgage applicant currently owns an investment property, they may need to show a rental agreement to explain those deposited rent payments. They also may need to show that they have equity in the home, which could translate to a home appraisal. On the other hand, if a mortgage applicant is renting, they may need to show canceled rent checks or utility bills to their lender.

Another instance where a buyer may need to explain a deposit that is seen on a bank statement is the case of a large cash gift, which may or may not be intended for a down payment. In this instance, the giftor may need to provide a letter stating that the gift money is not a loan.

Finally, in cases of alimony and child support, proof of divorce or a child’s age may be needed for the mortgage approval process.

A Credited Explanation

Mortgage lenders also want to know about any credit that an applicant has, such as student loans, credit cards or car loans. If a prospective buyer has any negative items on their credit report or has previously filed for bankruptcy, a lender may need to see an explanation for the negative credit or a copy of bankruptcy discharge papers.

Things a Buyer Won’t Find on Paper

The next couple “items” are not tangible documents that a buyer will submit during the mortgage approval process; but, they are priceless nonetheless. When applying for a mortgage, the earlier a buyer can show all documentation, the better; however, depending on how long the closing and approval processes take, some of the documentation may need to be updated. Many lenders require documents to be freshened up every 60 days.

Finally, buyers may like to know that, in most cases, photocopies of documentation will work just fine. However, it is important to include each and every page of a document, even if those final pages are blank.

Mortgage lenders vary and so do their requirements for approval. While the above list should give any buyer a jump on the mortgage process, consulting with each personal lender is always the best place to verify needed requirements.