How Many Years Should You Be Continually Employed at One Business in Order to Apply Receive Credit
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Depending on your unique financial situation, there are several documents you might need when you apply for a home loan, including your tax returns, pay stubs, bank statements and credit history.
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If you're applying for a mortgage, it's a good idea to start prepping your financial documents.
Lenders will request paperwork for your mortgage application that proves things like how much money you make and your debts. The exact forms you need for a home loan depend on your situation. For example, someone who is self-employed will likely have to provide different forms than someone who is employed by a company.
Although the exact forms might vary, Todd Huettner, owner of Huettner Capital, a residential and commercial real estate lender, says a lender can get a good sense of your likelihood of being approved by checking out your recent pay stubs, bank statements, W-2 forms and tax returns.
Huettner says that with these documents, he's able to make a good assessment of the borrower. "These documents allow me to tell (borrowers) what they can and cannot do with a very high level of certainty," he says.
Depending on your unique financial situation, here are seven mortgage documents you might need when applying for a home loan.
- Tax returns
- Pay stubs, W-2s or other proof of income
- Bank statements and other assets
- Credit history
- Gift letters
- Photo ID
- Renting history
- Next steps: Can you afford to buy a house?
1. Tax returns
Mortgage lenders want to get the full story of your financial situation. You'll probably need to sign a Form 4506-T, which allows the lender to request a copy of your tax returns from the IRS.
Lenders generally want to see one to two years' worth of tax returns. This is to make sure your annual income is consistent with your reported earnings through pay stubs and there aren't huge fluctuations from year to year.
2. Pay stubs, W-2s or other proof of income
Lenders may ask to see your pay stubs from the past month or so. Your tax returns help give them a clear idea of your overall financial health, while pay stubs help them gauge your current earnings. If you're self-employed or have other sources of income (such as child support), you may need to show your lender proof through 1099 forms, direct deposits or other means.
3. Bank statements and other assets
When assessing your risk profile, lenders may want to look at your bank statements and other assets. This can include your investment assets as well as your insurance, such as life insurance.
Lenders typically request these documents to make sure you have several months' worth of reserve mortgage payments in your account in case of an emergency. They also check to see that your down payment has been in your account for at least a few months and did not just show up overnight.
4. Credit history
In order to assess you as a borrower, lenders often pull your credit report — with your verbal or written permission.
According to Bruce Ailion, a real estate agent in Atlanta, you may need to explain any blemishes on your credit report. Blemishes might include a previous short sale or a foreclosure.
"You should be prepared to write a statement that explains negative items on your credit report," Ailion says. "This helps a lender evaluate what kind of risk you are. Lenders may look at one-time unavoidable circumstances differently from habitual delinquency."
5. Gift letters
Your friends and family might help you buy a house by giving you money. If that's the case, you'll need to provide a written confirmation the money is indeed a gift and not a loan. The documentation should list their relationship to you as well as the amount of the gift.
6. Photo ID
You'll likely need to provide a photo ID, such as a driver's license. This is simply to prove you are who you're claiming to be.
7. Renting history
For buyers who don't already own a home, many lenders will request proof that you can pay on time. They may ask for a year's worth of canceled rent checks (check that your landlord has cashed). Or, they might ask your landlord to provide documentation showing that you paid your rent on time. Your renting history is especially important if you don't have an extensive credit history.
Next steps: Can you afford to buy a house?
Your lender's goal is to assess you as a borrower and ensure you can make your payments on time.
If you're thinking about a home purchase in the near future, these are some good questions to ask yourself to prepare for the home-buying process.
- How much down payment can you afford? A higher down payment is often a good sign for the lender about your finances.
- What is your debt-to-income ratio? You'll likely need to keep this number below 43%.
- What monthly mortgage payment can you comfortably afford in your budget?
- Are you prepared for closing costs, such as an appraisal or prepaid property taxes?
Estimate your closing costs
Use our closing costs calculator to get a better idea of how much your closing costs could be when buying a home.
Source: https://www.creditkarma.com/home-loans/i/home-loan-documents
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