When it comes time to apply for a mortgage in 2014, you might be surprised at how much documentation you’ll need when applying for a home loan. Especially if you are a first time home buyer or someone who has not been through the process since all the new rules and regulations were implemented in the past few years.
The new Qualified Mortgage rules that took effect on January 10, 2014, make this paperwork even more important.
To meet the new Qualified Mortgage rules, lenders will be even more diligent in collecting the paperwork that proves that you can afford your monthly mortgage payments. While the documentation requirements under the new Qualified Mortgage rules might come as a shock to those who haven’t applied for a mortgage since 2008, they are common-sense requirements for the most part.
Here are the documents you’ll need to supply today to satisfy mortgage lenders:
• Full tax returns from the last two years: You’ll have to provide all the pages from both sets of returns. Your lender requires two years of returns to verify that your household income was consistent. Lenders get nervous when your household income fluctuates drastically from year to year. You can request a copy of your past returns by filling out Form 4506, Request for Copy or Transcript of Tax Form, from the IRS.
• Two most recent pay stubs from your employer: Make sure these are current or your lender won’t accept them. Your lender wants to approve you based on your current salary. If you haven’t saved your pay stubs on your own, request them from your company’s human resources department.
• Financial statements from the last two months: You can request these statements from your bank or print them yourself if you have access to online banking. Some lenders might also request copies of all your retirement and/or investment accounts. The thinking is that you can access these funds in a financial emergency — even if doing so generates a penalty — if you need extra money to repay your mortgage loan.
• Photo ID: Everyone whose name will be on the loan needs to provide a photo ID.
• Signed sales contract if the mortgage is for a home purchase: You will only have to provide this when you finally make an accepted offer on a residence, not needed if you’re applying for a preapproval.
• Proof of homeowners insurance: Lenders won’t give you a mortgage loan if you don’t first take out an insurance policy on your new home. You must have insurance for a refinance.
• Written verification of your position and salary: Make sure this is dated and written on company letterhead. Your lender might also call your employer during the underwriting process to verify that you haven’t lost your job since the time you applied for your mortgage.
• Canceled rent or utility checks: Lenders might request canceled rent or utility checks from first-time buyers to prove you have a history of on-time payments, according to the Consumer Financial Protection Bureau. More common with FHA.
• Gift letters: If someone is giving you a financial contribution to help cover closing costs or a down payment, you’ll need to provide a “gift letter” from the donor stating the amount, that the funds were a gift and do not need to be paid back.
• 1099 forms: If you are self-employed you will have to provide copies of your 1099 forms from the IRS to your lender. These forms show how much money you were paid as an independent contractor from various clients during a year. These forms, combined with your last two years of tax returns, will help prove that your self-employed income is steady. Customers who pay you $600 or more in a given year are required to send you a 1099 form.
• Letter of explanation: If you have had anything in the recent past that may be a hinder to the loan being approved and may effect your credit in a negative way be sure and write a letter of explanation explain in the detail the situation and what the cause was. Also, if you have any large deposits on your financial statements (checking and savings) be prepared to explain them.
There may be additional documentation depending on the circumstances, so my advice is be patient and remember that whomever it is that is asking for the documentation is no more excited to be asking for the documentation than you are to be asked for them. They are just doing their job and trying to assist in getting your loan closed in as efficient and timely a manner as possible. Be prepared and have this documentation ready along with any other documentation that may be needed and helpful down the line.
Last, but not least, make sure and work with someone you trust is going to do the kind of job necessary and that you deserve done for you. Purchasing a home can be stressful enough without the person your working with for your mortgage or your realtor making it worse.
Treat others as you would want to be treated yourself, I always say.
East Valley resident Aaron Ely is a senior mortgage consultant with the BNC National Bank Mortgage Division NMLS#260606. He can be reached at 480-505-7426 or firstname.lastname@example.org.