My goal is to get you thinking about what you are going to need to get pre-approved and,ultimately, to apply for your mortgage. This isn’t a “How to be a Loan Officer”course nor is it an attempt to explain why lenders ask for what they ask for (that’s an impossible task…). Instead, it’s a quick look at the various elements of a mortgage to help you prepare for your application so that you have the right documents for your situation. At the end of this article, you’ll find a complete list of documents so that you have a guide to work from.
Our task is to document a minimum of 2-years of employment, ideally with the same employer,and ideally getting paid in the same fashion. That’s not always the case, however, so your mission is to have your employment history prepared in advance with each employer’s name, address, phone number, position held, and your starting and ending dates. If there are gaps in your employment, that’s OK – we just have to document those periods and provide a brief letter of explanation (that’s something I will help you with).
If you are just out of school, specialized training, or some other program that prepared you for your current position, that will count towards the 2-years of “work” history. In those cases, we need to document where you received your training, the dates you began and completed the program, and provide your transcript, degree, or certification in your field.
For those who are self-employed, we (almost always) have to show that you have been self-employed for 2-years. To do that, we’ll want some “official” evidence of the existence of the business such as a business license, a filing with the Secretary of State, or a letter from your accountant.
If you don’t fit handily into any of these scenarios, don’t despair: puzzling through the way to get you qualified for a mortgage is what I do every day. Call or email me and we’ll work together to figure out how you can qualify.
Here, our task is to show that you actually have enough income to repay the loan (I know that seems obvious but there was a time when that wasn’t the case and it really didn’t turn out very well for any of us). For borrowers who are paid a salary, it’s usually pretty easy. That’s also true for folks who get paid hourly and work a consistent number of hours each week. If you are paid commissions, receive bonuses or tips, or receive overtime pay, we need to document that you have been receiving these earnings for 2 full years. That’s also true with income from a second job where we have to show that you have held two positions without interruption for 2 years. With all of these methods of earning an income, we average your last 2-years of earnings to come up with your qualifying income.
If you are self-employed, we’ll need to see your complete federal tax returns for the most recent 2-years plus a year-to-date Income Statement and Balance Sheet (these can be self-prepared, if desired). If your company files a separate tax return (usually, that means it’s either a “C” or “S” corporation), we need to look at those returns, too. Just as we do with commission and bonus income, we average your last 2-years of earnings to come up with your qualifying income.
If you have unreported income from wages paid “under the table” or tip income that you aren’t reporting on your tax returns, that money can’t be used as income. Also, if you have rental income that you aren’t reporting on your tax returns, that, too, won’t be considered as qualifying income.
Calculating qualifying income is a mystery to many people – even those in the mortgage business. Getting it wrong often means that folks who should be able to buy a home are told they don’t make enough money when the reality is that they really do. Let me help you see what your options really are so that you may go into your home financing with your eyes wide-open.
You will need to document all of the funds you plan on using to complete your transaction. This seemingly straight-forward topic is, however, fraught with some critical details that you’ll want to consider as you prepare your documents.
The lender will need to see 2-months of statements for the account(s) that the funds you will be using in the transaction will be coming from. Every deposit into those accounts is going to be looked at by the lender and you should plan on being asked to provide documentation on any non-payroll items.
If you are taking money out of your retirement plan, you’ll need to document the withdrawal and show that the money is in your account as early in the transaction as possible so planning ahead is essential.
If you are getting a gift, you’ll need to provide the paper-trail on the gifts (see my article “All About Gifts” here: https://www.kitcrowne.com/all-about-gifts/) as early as possible, too, so that the lender can approve those funds prior to closing.
If you have cash that you planned on using, the bad news is that cash is NEVER allowed… ever.
We will be looking at your credit report to capture your payments on all of your mortgages, loans, and credit card obligations. However, you might have financial obligations that don’t show up on your credit report such as child support & alimony, private financing on an investment property, or unreimbursed employee business expenses. Thinking about these issues in advance and gathering the supporting documentation, too, will help us help you navigate this critical area.
If you were previously married, we will need a complete copy of the Separation Agreement to document the financial terms of your divorce.
If you have student loans that are in deferment or are in an income-based repayment plan, we’ll need to see the documentation from your student loan servicer showing what the repayment terms are.
If you have a tax obligation that you are making installment payments on, we need to see the repayment terms that you have agreed to.
There are countless other possibilities, of course, so please make sure that you tell us about any obligations that you are paying that aren’t showing up on your credit report. What I most want you to take away from this topic is that the underwriter will ask about the things that don’t show up on your credit report so it’s far better to prepare in advance.
We will always need a government ID (Driver’s License or other similar document) in order to comply with the Patriot Act and other government regulations. If you are taking out an FHA or USDA loan, we’ll also need a copy of your Social Security card. (If you have lost your Social Security card, you will need to obtain a replacement card as early in the loan process as possible. You can find the nearest Social Security office to you by visiting this site: https://www.ssa.gov/locator )
If you are not a US citizen, you will need to provide proof of your lawful residency with a Green Card, unexpired Visa, or other suitable evidence.
Complete Document List:
☐ W-2s for all employment income for the 2 most recent years
☐ 1099s for all non-wage income reported
☐ Annual Award letters for any Social Security or pension benefits
☐ Federal tax returns for the 2 most recent years (all pages)
☐ Pay-stubs for the most recent 4-weeks
☐ Bank statements for the most recent 2-months
☐ 401k or other investment account statements
☐ Paper-trail on any gifts received
☐ Paper-trail on any loans/withdrawals from investment accounts
Liabilities & Expenses:
☐ Separation Agreement for past marriages
☐ Student loan repayment agreement
☐ Installment payment agreements on any non-reported debts
☐ Evidence of the taxes, insurance costs, and HOA fees for each property owned
☐ Driver’s License
☐ Social Security card
☐ Permanent Resident Alien card (Green Card)