Buying your first home can be an exciting experience—but it can also be quite stressful. It’s important to follow the proper steps and secure a mortgage loan in order to close on your dream home. While you may already be preapproved, final approval of your home loan isn’t finalized until all of the proper documents are provided. Failing to provide any of the necessary documents could result in your loan being denied, and the seller may move on to other offers. Here are 5 essential documents you should ensure you have on hand to secure your home loan quickly.
Proof of Income
Proof of your current income gives your lender the peace of mind that you have a pay to make those mortgage payments each month. Typically, they’ll want to see evidence of that income for several months, so they can get a clearer picture of your overall financial health. If you’re a W-2 employee, a copy of that W-2 or a few months’ worth of paystubs are usually sufficient. For self-employed individuals or any other sources of income you need to prove, you may need to provide 1099s, bank statements showing regular deposits, or other evidence of that steady income.
It’s a good idea to make a list of your income sources, then determine what documents you will need to provide to prove that income. If you can’t prove all income sources for some reason, you may still be approved for your mortgage loan, but it could be a lower amount, based on the income that you could actually provide evidence for.
Assets and Insurance
Lenders will want to assess how much of a risk you are as a borrower, and to do so, they’ll take a close look at your assets—including your insurance. While it might feel a bit personal for them to examine your life insurance policy, keep in mind that lenders need to consider the worst-case scenario. If the primary borrower on the mortgage were to pass away, would the secondary borrower have sufficient funds from the life insurance to keep making payments? For this reason, you’ll need to provide a copy of your life insurance policy for them to review.
They’ll also examine any other investments and assets that could be liquidated should you fall behind on your mortgage. These assets make up a part of your overall financial picture, so you’ll need to provide statements showing the value of your investment accounts (including retirement accounts, stock portfolios, etc.) for your lender to examine.
If you’re already providing bank statements for proof of income, you’ve already got this covered. If you’re providing a different document, you’ll still need to provide bank statements for all of your accounts. Before doing this, it’s important to know why they want to see your bank statements; lenders want to see that you have several months’ worth of mortgage payments in reserve in case of an emergency. So, save up those funds, then provide the statements to show that you’re prepared for a rainy day.
While this isn’t a document you’ll have to provide (your lender can pull your credit report themselves), it is a good idea to be prepared for them to review your credit. If your credit is blemish-free, you don’t have to worry about it. However, if there are any negative items on your credit report, you’ll want to prepare a written statement that explains these spots on your record. One-time, unavoidable circumstances that led to a credit problem is viewed very differently from habitual delinquency; so, if you can provide a good explanation for bad marks on your credit history, it could improve your chances of getting a mortgage, and possibly land you a lower rate.
Finally, you’ll need to provide the mortgage lender with copies of your past tax returns. Your tax returns give a pretty comprehensive picture of your financial situation, which is invaluable to someone considering loaning you hundreds of thousands of dollars. There are a couple of ways to do this: You can sign a Form 4506-T, which allows the lender to request a copy of your tax returns from the IRS. Or, if you have copies of your returns, you can provide them to the lender yourself.
If you’re applying for a home loan, it’s important to have these financial documents prepared so that you can have your loan approved in a timely manner. Unnecessary delays and hang-ups in the loan can stall your home’s closing—or it could cost you the home altogether. If you need help preparing your financial documents for a loan application, or if you need past tax returns completed quickly to apply for a mortgage or refinance, contact Peter Witts CPA today. We’ll help you get the financial documents you need quickly, so your loan can proceed quickly and smoothly.