The mortgage process has traditionally been one filled with jumbles and masses of paperwork — and the borrower is largely responsible for coming up with said piles of paper. We’re reaching for our aspirin just thinking about it.
The good news is that the days of paper mortgages could soon become a thing of the past. Thanks to technological advances and a little ingenuity, you can now complete your application largely online. Even so, it’s helpful to know exactly what kind of documents (paper or electronic) you’ll be expected to have on hand during the mortgage application process.
The bulk of the document requests will arise when you begin your application. Then, at the point of approval, any clarifying documents will be requested. And just prior to closing, we’ll need any final touches along with the insurance coverage information.
There are four categories across which the underwriter will need to verify information: income, assets, liabilities and subject property. Let’s start from the top.
Income Verification — how do you make money?
When you get pre-approved, the amount you can borrow is based on self-reported numbers and income. The application process is where you have to prove you make the amount of money you said you did. Income is often verified by reviewing the prospective borrowers’ two-year history, which may look different depending on whether you work for a company or for yourself. The standard documents that most loan underwriters will want to see are:
W2 employee:
- Two most recent pay stubs
- Previous two years’ W2s
- Two years’ most recent personal federal tax returns (1040s), all pages and all schedules, if you have other types of income such as rental properties (usually not required of W2 employees)
Self-Employed:
- Most recent two years’ K1s, if applicable
- Most recent two years’ personal federal tax returns (1040s), all pages and all schedules
- Most recent two years’ business federal tax returns (1040s), all pages and all schedules, if applicable
Asset Verification — what’s your net worth?
The grand total of all the funds you have available to you comprises your net worth. What might that include?
- Checking accounts
- Savings accounts
- Retirement accounts
- Certificates of Deposit (CDs)
- Brokerage accounts
In short: if you’ve declared it, you need to prove it! Your assets are verified by the most recent two months’ statements of all accounts that you’ve declared on the application. Retirement accounts often issue statements on a quarterly basis only, so the most recent statement you have available should suffice.
Keep in mind that you will need to submit complete statements containing all pages — even those blank ones, or the ones with only marketing material. Hey, we don’t make the rules!
Also of note: gifts and overdraft fees could trip you up during the application process. All deposits into your accounts must have documented sources. Cash deposits are particularly hair-raising to lenders, so expect to answer some questions if you’re moving large amounts of cash into or out of your accounts. Go into the negative from time to time? It probably goes without saying, but you’ll have to explain that too.
Liabilities — what bills do you have?
Underwriters will be able to see your liabilities by accessing your credit report, so you won’t have to provide extensive documentation here.
Some liabilities you may have are:
- Auto loans
- Credit cards
- Student loans
- Mortgages
- Personal loans
Own other properties on which you’re making mortgage payments? We’ll need mortgage statements for those. If you are not including your homeowner’s insurance and real estate taxes with your mortgage payment, you’ll need to provide documents showing those payments as well. The total amount you pay is what’s important.
Subject property — which documents come with your home?
You’ll need to provide some documents pertaining to the home you are buying (or the home you own, in the case of a refinance mortgage).
Some of these documents are:
- Appraisal, which will be requested by the lender prior to closing or refinancing
- Real estate tax verification
- Proof of insurance coverage and a receipt for the amount paid. Typically speaking, you will be required to demonstrate that you have paid up at least 12 month’s worth of insurance premiums prior to your closing.
- Fully executed sales contract (only required for purchases)
- Proof of down payment funds – if this was a gift, the lender will usually request verification from the giver, along with a letter stating that the money is a gift as opposed to a loan that must be repaid.
It’s worth noting that the responsibility to provide these particular documents falls on different sides of the sales line, depending on the type of loan you’re applying for (purchase or refinance). On a purchase, these documents will be provided by the seller. If refinancing, you may be asked to provide tax and insurance information.
Bottom line:
Technological advances enable today’s borrowers to significantly reduce the headache and paper footprint associated with their mortgage application. You’ll still need to gather and submit some documents electronically, but borrowers can handily keep track of their digital checklist when completing their applications online, rather than shuffling piles of paper.
Simplist’s goal is to make the mortgage application process seamless, secure, simple, and worry-free. We look forward to helping you on the right footing as you embark on your homebuying or refinancing journey!