| Applying for a loan
today is quicker and easier than it has ever been. Verification of borrower
statements usually takes place over the phone and through paperwork provided
directly from the borrower.
Lenders have had to streamline loan
processing, including the review of loan applications, in order to be
competitive in the Internet Age. Little more than a decade ago, lenders would
take the word of virtually no borrower, and verified most information by
requesting letters via U.S. Mail from third parties such as employers and
banks. Today, lenders do occasionally request verification letters through the
mail, but this is largely part of a random audit process used for quality
control.
Some lenders have even created
"no-income-verification" loans to cater to borrowers with specific
financial backgrounds. This type of financing may be especially important to
people who are self-employed or who get most of their income from seasonal
occupations like farming or ranching.
Most borrowers, of course, take
advantage of traditional mortgage loans to purchase real estate. No-income-verification loans sometimes require additional verification of items not
required for other types of loans, and they usually have slightly higher
interest rates.
Listed below are the documents that
loan officers and mortgage brokers want from most people applying for a loan.
Some items may differ slightly according to the type of loan being sought
(e.g., conventional loan, government-guaranteed loan, portfolio loan, etc.).
Income Items
- W-2 forms for last two years;
- Pay stubs for the two most-recent paychecks (four if paid weekly);
- Year-to-date profit and loss statement (for self employed);
- Corporate or partnership tax returns (if applicable);
- Pension award letter (for retirees);
- Social Security award letter (if receiving SSI benefits).
- If receiving down-payment assistance from an employer, a copy of the
employer's paperwork and the check received;
- To document receipt of child support or alimony (if used as income for
loan repayment):
- Copy of Divorce Settlement or Child Support Order
- Copies of 12 months' checks along with deposit receipts
- Federal tax returns (Form 1040) for the last two years, if:
- Self-employed
- Earn 25% or more of income from commissions or bonuses
- Own rental property
- In a career likely to take substantial non-reimbursed
business expenses.
Asset Items
- Bank/credit union statements for last three months (all pages, all
accounts);
- Brokerage or investment account statements for most-recent three months;
- Copy of latest retirement account statement (e.g., 401k, 403b, IRA,
etc.);
- Copies of U.S. Savings Bonds;
- Copies of stock or bond certificates (only if not held in brokerage
account), plus estimates of their current worth;
- Copies of vehicle titles (if not financed);
- Copy of check written to pay "earnest money" deposit (if
purchase offer already made and accepted);
- Explanations of any large deposits and the source of their funds;
- Copy of Settlement Statement (HUD1) on recent home sale;
- Copy of Estimated Settlement Statement, for a home being sold in escrow,
but which has not yet closed;
- If using funds from a relative or friend, obtain a "gift letter" stating:
- Relationship between parties
- Amount of gift
- Source of funds
- Donor ability to make gift
- That gift is not required to be repaid.
- Documentation to verify actual granting of gift:
- copy of giver's checking account statement
- copy of check written by giver
- copy of receipt showing deposit of funds into applicant's bank,
credit union or escrow.
When selling1 assets, or
borrowing2 against them, to raise money for down payment or closing costs,
document transaction particulars using at least one of each of the following kinds of
paperwork:
- To show ownership:
- Statements or receipts showing date and price of applicant's
original purchase
- Account statements showing value or amount of investment
- Title or bill of sale
- Copies of previous inventory sheets
- Letters from witnesses
- To show value:
- Copy of "Blue Book" or similar estimate of value
- Estimated value from broker or administrator's most-recent regular
statement
- Written appraisal
- Certification from an expert dealing in the type of property sold
- To document sale or loan:
- Copy of bill of sale or receipt
- Copy of broker or administrator's transaction verification document
along with a copy of check
- Photocopy of cash next to buyer's driver license
- Copy of buyer's check
- To document deposit of funds
1. A lender will not view the
sale of an asset as an acceptable source of funds if the asset's ownership and
value cannot be documented.
2. When borrowing
against assets (such as money in a 401k or 403b retirement account) to raise
cash for a purchase, some lenders will figure the loan negatively in
calculations of the amount the applicant can borrow. This can be an important
consideration for borrowers with marginal debt-to-income ratios. Be sure to
consult a loan officer before borrowing against any asset to make a home
purchase. Consult an accountant before withdrawing any funds from a retirement
account in order to make a home purchase.
Credit Items
- Landlord's name, address, and phone number (if renting primary
residence);
- List of all open credit accounts with address, phone and account
numbers;
- Written evidence of rent or mortgage payment amount;
- Credit card statements for last two months;
- Copy of bankruptcy papers (if filed within last
seven years).
- Written explanations of following items that may appear on a credit report:
- Late payments
- Credit inquiries in the last 90 days
- Charge-offs
- Collections
- Judgments
- Liens
Other
- List of primary residence addresses for last two years;
- Copy of driver license or state-issued identification
- Copy of Social Security card (or other documentation of Social Security
number);
- Copy of contract for property being purchased (to be submitted after
purchase offer is made and accepted);
VA Loans
- Copy of Form DD-214 (Separation from Active Service)
- Certificate of Eligibility (COE)
Refinances
- Copy of promissory note on existing loan(s);
- Copy of Settlement Statement on existing loan(s);
- Name, address, phone number and loan number for existing loan servicer.
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