If you are a potential buyer seeking a mortgage to purchase your home, the mortgage application process can seem daunting and complex. Stories of the difficulty of obtaining loans in this era of stringent underwriting standards abound. The path to a smoother mortgage approval can be taken if you know what lies ahead.
The mortgage industry has come full circle with it’s requirements for income and asset documentation, when compared to the practices of several years ago. In reaction to the relaxed documentation requirements of the past, mortgage underwriters are much more stringent when it comes to income and asset verfication in today’s lending environment.
This checklist of what constitutes the basic financial documentation required of a potential borrower, can help you prepare you for the mortgage application process ahead.
IDENTIFICATION
– At least one must be a photo ID – Drivers License, Passport.
– The second must be state or government issued, acceptable forms are: Social Security Card, Birth Certificate, License to Carry, Voters Registration card, or another form of photo ID, such as a Passport. Work visa, green card, EAD – Employment Authorization Document are required for non permanent residents.
– ID must be 100% legible, and unexpired.
ASSETS
– All assets (checking, savings, retirement, investments) provided must contain every numbered page of the statement, all schedules, to show your name, the banks name, account number, and the running balance.
– For monthly statements, the most recent 2 months of statements are required. For quarterly, the most recent quarter. For annual, the most recent annual statement, along with a year to date printout from the organization if the annual statement was provided more than 1 month prior to loan application.
– No information may be blacked out.
– During loan processing, any request for updated assets would have the same applicable criteria. When updating, there can be NO gaps in between online printouts or updated statements and the original statements provided at application.
– Any deposits over $1,000 that are not a result of direct pay must be fully documented. To document, provide either the statement from which the funds were withdrawn, or copies of the checks and deposit slip from the bank to verify the total deposit made. Cash deposits are not considered as valid funds, and will be deducted from the overall “cash available” the bank considers as funds available for closing.
– Gifts: any money being received towards closing (to include deposit checks) that is gifted from family must also be fully documented. A gift letter is required, as well as the bank statement from the donor to evidence clearance of said gift funds (note, all asset criteria except for large deposit sourcing would apply). Also, a copy of the check for the gift funds is required, or, wire receipt. Statements for the recipient/borrower are also required to reflect the deposit of the gift. If funds are transferred directly from the donors account to the recipient, the statements from the donor & recipient will suffice. All gift funds must be settled and documented no later than a week prior to settlement.
– For funds borrowed from a retirement account, or any other entity, would require all terms and conditions of the loan to be documented. Withdraw of said funds also to be fully documented, as well as the deposit of said funds.
INCOME
– 1 full month of the most recent pay stubs required (to reflect all deductions). Any deductions outside of retirement and taxes to be documented, such as wage garnishments and or loan repayments.
– Past two years W2 forms.
– Past two years tax returns, SIGNED. All pages, all schedules. Applicable for: the self employed, anyone who owns investment properties, or anyone who is in a profession that would entail the potential of unreimbursed employee expenses, such as sales.
– Any individual than has an ownership interest of 25% in a company is considered self employed. If an owner in a partnership, LLC, corporation, 2 years of business tax returns including all schedules to be supplied, along with K1 forms when applicable.
– For Social Security/Disability, provide the most recent year’s award letter, as well as the most recent 3 months evidence of receipt of SS income (bank statements, all criteria regarding to assets would apply).
– For Pension, provide the most recent account information as to the benefit received, as well as the most recent 2 years if applicable of tax documentation evidencing amount received.
– For interest & dividend income, provide your most recent 2 years of tax returns, as well as the most recent account statements (asset criteria apply) to show that there are sufficient funds in the accounts to prove that the income is likely to continue for at least 3 years.
– For Alimony, provide the divorce decree, the property settlement agreement as well as evidence of receipt of said funds for no less than 3 months prior to application. For child support, divorce decree if divorced, the property settlement agreement, court order for support, as well as evidence of receipt for no less than 3 months prior to application.
Thanks to Steve Madonna of Weichert Financial Services for supplying this checklist.
Wallingford Real Estate – Wallingford, PA 19086
