Purchasing your first home is an exciting milestone, but it can also be a stressful process. To secure your dream home, it’s crucial to follow the proper steps and ensure that you have all the necessary documents to finalize your mortgage loan. Failure to provide the required documentation could result in loan denial, potentially causing the seller to move on to other offers. Here are five essential documents you should have on hand to expedite your home loan approval:
Proof of Income
Your lender needs proof of your current income to ascertain your ability to make monthly mortgage payments. Typically, they will require evidence of income over several months to assess your overall financial health. If you’re a W-2 employee, providing copies of your W-2 form or a few months’ worth of paystubs is usually sufficient. For self-employed individuals or those with alternative sources of income, you may need to provide 1099 forms, bank statements demonstrating regular deposits, or other evidence of consistent income.
Create a list of your income sources and determine the documents required to substantiate your income. If you can’t provide proof of all income sources for any reason, your mortgage loan approval may be based on the income you can substantiate, potentially resulting in a lower loan amount.
Assets and Insurance
Lenders assess borrowers’ risk by examining their assets, including insurance coverage. While it may feel personal, lenders must consider worst-case scenarios. They will require a copy of your life insurance policy to evaluate whether the secondary borrower could sustain mortgage payments in the event of the primary borrower’s passing. Additionally, lenders will scrutinize other investments and assets that could be liquidated if you encounter difficulties with your mortgage payments. Provide statements reflecting the value of your investment accounts, including retirement accounts and stock portfolios, for thorough evaluation.
If you have already provided bank statements as proof of income, you’ve covered this requirement. However, if you’re submitting alternative documents, you’ll still need to supply bank statements for all your accounts. It’s important to understand why lenders request bank statements—they want to ensure you have several months’ worth of mortgage payments in reserve to handle unexpected emergencies. Accumulate those funds and furnish the statements to demonstrate preparedness for unforeseen circumstances.
Although credit history is not a document you need to provide (lenders can access your credit report themselves), it’s wise to be prepared for a thorough credit review. If your credit is flawless, you have nothing to worry about. However, if there are negative items on your credit report, preparing a written statement explaining these instances can be advantageous. One-time, unavoidable circumstances leading to credit issues are viewed differently from habitual delinquency. Providing a sound explanation for any credit problems can enhance your chances of securing a mortgage and potentially result in a lower interest rate.
Finally, you must provide copies of your previous tax returns to the mortgage lender. Tax returns offer comprehensive insights into your financial situation, providing invaluable information to someone considering loaning you a substantial amount. There are two ways to accomplish this: You can sign a Form 4506-T, granting the lender permission to request copies of your tax returns from the IRS. Alternatively, if you possess your tax returns, you can submit them directly to the lender.
To ensure a smooth and timely home loan approval process, it’s crucial to have these financial documents prepared. Delays or complications in the loan process can disrupt the closing of your home purchase or even jeopardize your chances of acquiring the home altogether. If you need assistance preparing your financial documents for a loan application or require prompt completion of past tax returns for a mortgage or refinance, contact Peter Witts CPA today. We will expedite the gathering of the necessary financial documents, facilitating a smooth and efficient loan process.