Home buyers often feel lenders ask for too much personal information when they apply for a mortgage.
If you feel uncomfortable handing over bank statements and tax returns, I have a suggestion for you. Try a no-doc loan.
A no-doc loan means the lender will require little or no documentation from you. You may not have to provide a W2 or tax return. You might only have to bring your driver’s license and allow the lender to pull a copy of your credit history.
In exchange, you’ll pay a premium of extra points and fees, as well as pay an interest rate one or more percentage points above the prevailing rate.
If, on the other hand, providing some paperwork sounds like it might not be such a bad idea after all, here’s a list of everything a lender is going to need to verify that you have a job, what you earn, how much you have saved, what kind of assets you have, and assess what kind of credit risk you’re likely to be.
First, you’ll need to prove to the lender that you have some form of stable, dependable income, even if that income is primarily seasonal, or if you typically receive just a fraction of your income each month and depend on an annual or semi-annual bonus.
Typically, lenders ask to see the W2 forms for the past two years for each person who’ll be a co-signer on the loan. You may be asked to provide a current pay stub, or even a month’s worth of pay stubs, so the lender can see where you are for the year, as well as a phone number for your company, so the lender can verify your employment and salary.
If you’re self-employed, life gets a little more complicated. You’ll have to provide your W2 (if your company is a corporation and you are its employee), and other information, including your business tax return for the past two years and perhaps a profit and loss statement showing your business income for the current year.
You, and anyone applying for the loan with you, will also have to bring copies of completed federal tax forms, including any schedules or attachments, for the past two years.
You will need copies of the three most recent bank statements for every bank account, IRA, Roth IRA, 401(k), Keogh, or stock account you have. You’ll also need copies of your most recent state of valuation for any other assets you have.
If you’re receiving a gift of cash to use toward your purchase, the giver of the cash must provide a copy of the canceled check, copies of the giver’s recent bank statements, or other proof that he or she had that money to give. You may be asked to show the deposit slip for the gift (when you deposited it into your account). The giver may also need to fill out a gift letter affidavit (available from the loan officer), indicating that the funds were a gift and that the gift giver does not expect repayment.
If you’ve been divorced, you may need to provide complete copies of all divorce decrees, including information regarding child support payments, if any. If you’re legally separated, you may need to provide proof of your legal separation.
The lender will want to know where you’ve lived for the past seven years. If you’ve lived at the same address, or perhaps two addresses, it may not be so tough to remember that. If, however, you moved every year or so, you’ll need to construct a list of your past addresses.
If you’ve made any large deposit into any of your bank accounts in the past three to six months, you will need to provide the lender with an explanation as to where the funds came from, with proof. By large deposit, lenders are looking for something larger than your monthly income. If the cash came from an inheritance, you may need to provide a copy of the letter the estate sent to you with the check.
If you’ve opened up a new bank account in the past six months, you’ll need a letter explaining the source of the money to open this new account.
You’ll need to present the lender with the addresses and account number for every form of credit you have. While much of this will pop up on your credit history, something may not be reported.
You will also need documentation to verify any additional income, such as from Social Security, child support and alimony.
If you’ve had a previous bankruptcy, you will need a copy of the bankruptcy proceedings, including all schedules, and a letter explaining the circumstances surrounding the bankruptcy.
If you’re currently in litigation, you’ll need to provide a copy of the lawsuit, and a letter explaining the circumstances. If you’ve had any judgments against you, you’ll need a copy of the recorded satisfaction of judgment. Lenders are wary about approving mortgages if you might be held liable for damages in a lawsuit.
If any unpaid or outstanding judgments against you pop up on your credit report, but you’ve paid them, you will need to provide proof of payment.
If you’re applying for a Federal Housing Administration (FHA) or Veterans Administration (VA) loan, you’ll need a photocopy of your picture ID, a copy of your Social Security card. The VA will require proof of induction, or enlistment and honorable discharge.
Finally, once you’ve signed a contract for a home and begun the mortgage approval process in earnest, you’ll need a copy of the front and back of the canceled check for your earnest money, a copy of the sales contract and all riders, plus the names, addresses and phone numbers of both brokers, any attorneys involved with the deal or the escrow company.
The lender will also want to see a copy of the survey or title policy for the home you’re buying and copies of any condo, townhouse, or co-op association documents, including the current and prior year’s budget for the association.
If you’re going to be shopping around for your mortgage, it’s a good idea to make a few complete copies of all the documents, and keep them in a separate mortgage loan file. After all, it’s entirely possible that you or your lender will misplace something along the way.
Published: Nov 28, 2003