Jan 26, 2023 9:00:00 AM | Financial Goals The Documents Needed to Secure a Mortgage in a Time of Tight Standards

The mortgage market has changed remarkably in recent years. Today, mortgage lending standards are tight and borrowers have to contend with high-interest rates. This is partly because of the COVID-19 pandemic and a more uncertain economic outlook. 

Buying a home is a huge investment and the current environment can stand in the way of your home ownership dreams. Fortunately, with knowledge and preparation, you can improve your chances of securing a mortgage. 

Below is a mortgage borrower checklist to help you stay organized.

BORROWER ITEMS NEEDED FOR MORTGAGE LOAN PROCESSING 
  

With mortgage lending standards and mortgage rates in an unfavorable position for buyers, you must ensure you do your due diligence. This includes prepping all the relevant documents. Here is what you’ll need!

BASICS

Tightened lending standards mean that lenders will require all applicants to submit certain basic items in order to get a mortgage. They include: 

•  A current driver's license for all borrowers: This proves your identity and shows your correct home address. 
•   A letter of explanation on all credit inquiries in the last 120 days (if applicable): Just as the name suggests, this allows you to explain anything the lender wants to know. 
•   Homeowners' insurance information: To prove that the home is adequately insured, you will need to provide details such as the agent's name and phone number.

PROOF OF INCOME

When you apply for a loan, mortgage lenders want to verify your employment and make sure you have a stable income to repay the loan. Here are the documents you’ll need during the underwriting process depending on your source of income. 

Income documentation for hourly or salary employees:

• The two most recent paystubs covering 30 days: These will show your patterns of income and help determine whether you have a steady cash flow to repay the loan. 
• The most recent two years' W2s: Copies of your W2 tax forms will prove that you are employed with an income. Your taxable income will help determine whether you can afford the loan now and in the future. 

Income documentation for self-employed or commission employees

• The last two years of complete federal tax returns: This helps lenders verify that you have the income you say you do. In addition, the lender will be able to see if your annual self-employment income is stable and reliable. 
• Copy of tax extension: If you owe money to the IRS, the lender will require you to provide a copy of the payment. 

Income documentation for retired borrowers 

• Copies of the most recent Social Security Awards Letters: This document will show your benefits, effectively serving as proof of income.  
• Copies of the most recent Pension Awards Letters: This document details the pension benefits you have earned to verify your income.
• Your last two years' 1099s: Your lender will require these records of the non-salary income you have received. 
• Your last two most recent bank statements to show the income you deposited. 

RENTAL PROPERTIES

• The last two years of your total federal tax returns to verify you have the income. 
• A copy of the most recent mortgage statement for all the properties you own to show your existing loans. 
• If the rental property is not financed or escrowed, you will need to provide a copy of the insurance declarations page. This document sums up what is in your homeowners' insurance policy.
• Current tax bill for all the properties you own 
• If you want to refinance an investment property, you will need a copy of the current lease agreement to prove that your rental property has tenants. 

ADDITIONAL DOCUMENTATION 

More stringent mortgage lending standards mean that even more detail is required to assess your eligibility for a home loan. Depending on the circumstances, your lender may ask for: 

• A fully executed purchase contract
• In case of FHA or VA refinancing, you will need to provide copies of the existing mortgage note and statement
• Copy of a divorce decree and/or child support order
• Bankruptcy papers (all schedules) and a copy of discharge by the judge 
• HUD from a pending sale if you are selling your current home
• A copy of the existing mortgage note if you are refinancing and keeping a second mortgage
• A written explanation if there is an employment gap of over 30 days in the past two years
• A legible stamped/ sealed survey for Texas properties
• A copy of a Permanent Resident Card and proof of eligibility to work in the United States

PROOF OF ASSETS 

When applying for a mortgage, lenders will want to be sure that you have enough funds for the down payment and closing costs, and that you will be able to make the payments in case of financial difficulties. This is why you may want to provide proof of assets. In addition to your income, the following documents will help you to secure a mortgage:

• Two months of your most recent bank statements. The document should include all the pages of the statement.
• A written explanation of any large deposits greater than 25 percent of the income received
• A 90-day history statement of your investments. These include your 401k account, IRA account, and stocks
• If you are using your 401k as reserves, you will need to provide documentation detailing the terms of withdrawal. 

Other things you can do to improve your chances of securing a mortgage at a low rate include boosting your credit score, controlling your spending before making your mortgage application, and saving for a larger down payment. Lastly, do not incur any new debt during the process! 

Do you need a mortgage to finance your new home purchase? Look no further than Valliance Bank. We provide an easier way to bank and are fully committed to offering customized loan products to enable you to achieve your goals. Contact us today to learn more.