Applying for a mortgage can be a time-consuming process. That’s because mortgage lenders want to carefully evaluate all of your financial credentials before they decide to approve you for a home loan.
You can make life easier for yourself — and hopefully expedite the process of loan approval — by having your financial documents ready so there’s no delay when lenders ask for them.
In particular, here are five documents worth having ready to go as soon as you submit your mortgage application.
A W-2 form is a wage and tax statement that employers send to the IRS. When you’re applying for a mortgage, your lender will want to review your W-2s for at least the last two years so it can see exactly how much your employer paid you. Lenders care about both the amount of your income as well as its consistency and stability. This is important because they want to ensure you have the money to pay off your home loan.
If you are self-employed or work as a freelancer, independent contractor, or gig worker, you probably don’t get W-2s. Instead, you likely receive 1099s. Lenders will need to see these tax forms as well. If that’s your situation, it’s worth reading more about the process of getting a mortgage when you’re self-employed.
In many cases, lenders will also ask for pay stubs in addition to W-2s. These pay stubs typically need to be very recent. And lenders may ask you to get your current employer’s signature on them.
The lender will use those recent pay stubs to make sure your income hasn’t changed between the time you’re applying for the loan and the time your employer sent your most recent W-2s. They want to know how much you’re currently being paid.
Lenders also look at your tax returns to find out about your income. Tax returns can provide a big picture overview of total income you earn during the year from all sources. They also show any deductions you claimed, which can help lenders better understand your overall financial situation.
If you are self-employed, a freelancer, or a gig worker, expect to provide additional tax documents, such as business tax returns.
Bank and investment account statements
Lenders are interested in your assets as well as your income. They want to make sure you have the money to cover closing costs and a down payment. And sometimes they will require you to have enough money in reserve to make several months of payments.
As a result, they’re going to want to see your bank and investment account statements. The more assets you have, the better your chances of loan approval, so be sure to include all of this documentation.
A gift letter
If someone is giving you a gift to put toward your down payment or toward other costs associated with your house, you need to be ready with a gift letter. This is essentially a formal written document signed by the person who provided the gift attesting that it actually is a gift and not a loan that you’ll have to pay back.
Lenders ask for this because they want to know that you won’t have an additional financial obligation to fulfill — and they also may want to see that you’re putting some personal money on the line toward the purchase of your home.
By getting these documents ready in advance, you can give them to your potential lender right away during the application process to streamline the process of loan approval.
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