What Documents Should You Have on Hand to Secure a Mortgage?

When you are ready to begin your search for a mortgage, be sure to have the following documentation ready for sharing:

Identification

To prove you are who you claim to be, lenders will need to see at least two pieces of government issued picture identification. Also, be prepared to provide your Social Security number.

Income verification

Lenders will need to see recent proof of income, typically in the form of your most recent pay stubs (or equivalent), to get an understanding of your ability to repay any debt you incur. In addition, they will often request your last two annual tax returns to ensure your income has been steady over a sufficient period of time. Lenders like to see that your current financial situation continues to be stable over a meaningful period as it reflects higher probability that you will repay the mortgage.

Bank statements

The request to see your bank statements and possibly other assets (investment accounts, insurance etc.) allows them to verify that you have a cushion available to cover your mortgage payments should your income drop. It also allows them to see that you do indeed have the funds needed to close the deal and that you have had it for at least a couple months. Renters proof of low risk behavior If you are currently renting, lenders will likely want proof that you have consistently paid your rent on time. This may include a letter from your landlord or other supporting documentation, including canceled checks.

Credit Report Access

Most lenders will require access your credit report with your permission. Be prepared to provide explanations for any late payments, or other issues noted on your report.

A Gift Letter

If any of your friends or family are helping you buy a house by giving you money, lenders will want to see a letter from that person confirming that it is not a loan, rather a ‘gift’ that you never have to pay back. The letter will need to show the amount of the gift, and the name and relationship of the person(s) who gave it to you.

Proof you don’t owe taxes…or if you do, proof of a payment plan

Mortgage lenders regard a person with tax debts as riskier people to lend to. However, an unsettled tax debt might not sink your chances of being approved for a home loan. You can improve your chances of approval now or in the near future by creating a plan to pay the debt off and implementing it before you look for a mortgage. Providing proof to a lender that you are on track and handling this debt wisely may go a long way in demonstrating your creditworthiness.

Conclusion

At the end of the day, the lenders goal is to assess your quality as a borrower and evaluate the risk of you defaulting on mortgage payments before setting the terms of the loan. If they determine you to be a higher risk, that doesn’t mean they won’t lend to you - they may just charge a higher rate of interest. Bottom line - be prepared that most lenders will need to gather information about your income, credit history, assets and debts. While the exact documents lenders require will vary, be sure the documentation you provide is complete and portrays your financial capacity accurately.