If you’ve never bought a home before and are seriously thinking about it, the process is much easier than you might think. Getting a mortgage simply means complying with typical loan guidelines and documenting via third party certain aspect of your loan application. In today’s mortgage world lenders are required to validate certain aspects of your application by reviewing documentation you provide the lender. When you submit an application the lender will provide you with a list of documents you will need to present in order for your loan to move through the approval process. It doesn’t matter if you live in Phoenix or Richmond, most loan programs like USDA, FHA, VA and Conventional require the same basic suite of paperwork. To be more easily prepared for your loan approval, here are the primary documents and paperwork the lender will soon ask for.
Mortgage lenders are required to document what is referred to as the “Ability to Repay” or ATR. Generally, the ATR calculation asks that monthly credit obligations such as a car loan or student loan along with the new mortgage payment be no greater than 43% of your gross monthly income. On your initial loan application, you are asked about your monthly obligations including amounts for day care or other obligations that won’t be listed on a credit report. Those will be added to the minimum monthly amounts listed on a credit report. These are the payments used to calculate the ATR.
Income is documented by providing your most recent pay check stubs covering a 30 day period. These stubs should also include a year-to-date amount yet that is not a requirement. You’ll also be asked for your two most recent W2 forms. The income on your W2 forms must be relatively consistent with what you’re making now. Lenders ask for two years of W2 forms because mortgage guidelines ask that lenders verify at least two years of employment.
If you’re self-employed or receive income other than from an employer you’ll be asked for your two most recent federal income tax returns. Income from year-to-year should be consistent as well.
For funds needed as a down payment and closing costs, you’ll be asked for your most recent bank statements that show sufficient funds to close. The lender will also research the deposits made in those accounts and compare them with your income. For example, if you get paid $3,000 on the 1st and 15th of each and every month, the lender will review your statements matching up the $3,000 figure deposited into your account on or about the 1st and 15th.
If there are deposits that show up and are not from your employer, you will need to provide documentation as to the source of those deposits, especially if you need those funds in order to close on your purchase transaction. For example, you get paid $3,000 on the 1st and 15th yet there are two deposits showing for that month. $1,500 on the 10th and $800 on the 23rd. What is the nature of these deposits? Did you borrow the money and if so when will you pay it back and how? Did you sell something of value? If you did and need those additional funds you’ll need to provide documentation of ownership of the asset you sold along with a receipt or bill of sale. Otherwise, the lender won’t be able to count those funds as available to close even though they’re listed in your bank account. Or, if you can show similar deposits over the past two years the lender can use those funds for a down payment and closing costs in addition to adding these amounts to monthly income as long as the lender can make a reasonable determination those amounts are likely to continue into the future.
Finally, beyond income and asset documentation, the mortgage company will send a host of loan disclosures and paperwork you’ll need to preview, sign or initial and return to the lender. Most of this paperwork can be signed electronically via your computer or smartphone. If you have any questions about any of the required documentation, a quick phone call to your loan officer will clear things up. Call us at ph: 800-691-8826 for questions about apply for USDA, FHA or VA loans.