When applying for a mortgage, it's always a good idea to have certain financial documents on hand. Lenders will request paperwork for your mortgage application that provides proof of income, as well as debts. The exact forms you need for a home loan depend on your situation. For example, someone who is self-employed will likely have to provide different forms than someone who is employed by a company. Although the exact forms might vary, Todd Huettner, owner of Huettner Capital, a residential and commercial real estate lender, says a lender can get a good sense of your approval odds by checking out your recent pay stubs, bank statements, W-2 forms, and tax returns. 1. Tax Returns Mortgage lenders want to get the full story of your financial situation. Lenders generally want to see one to two years’ worth of tax returns to make sure your annual income is consistent with your reported earnings through pay stubs and there aren’t huge fluctuations from year to year. 2. Proof of Income In addition, Lenders may ask to see your pay stubs from recent months. Your tax returns help give them a clear idea of your overall financial health, while pay stubs help them gauge your current earnings. If you’re self-employed or have other sources of income (such as child support), you may need to show your lender proof through 1099 forms, direct deposits, or other documents. 3. Proof of Assets When assessing your risk profile, lenders may want to look at your bank statements and other assets. This can include your investment assets as well as your insurance, such as life insurance. Lenders typically request these documents to make sure you have several months’ worth of reserve mortgage payments in your account in case of an emergency. They also check to see that your down payment has been in your account for at least a few months and did not just show up overnight. 4. Credit History In order to assess you as a borrower, lenders often pull your credit report — with your verbal or written permission. According to Bruce Ailion, a real estate agent in Atlanta, you may need to explain any blemishes on your credit report. Blemishes might include a previous short sale or a foreclosure. 5. Photo ID You’ll likely need to provide a photo ID, such as a driver’s license. This is simply to prove you are who you’re claiming to be. 6. Renting History For buyers who don’t already own a home, many lenders will request proof that you can pay on time. They may ask for a year’s worth of canceled rent checks (checks that your landlord has cashed). Or, they might ask your landlord to provide documentation showing that you paid your rent on time. Your renting history is especially important if you don’t have an extensive credit history. Your lender’s goal is to assess you as a borrower and ensure you can make your payments on time. If you’re thinking about a home purchase in the near future, these are some good questions to ask yourself to prepare for the home-buying process:
● How much down payment can you afford? A higher down payment is often a good sign for the lender about your finances.
● What is your debt-to-income ratio? You’ll likely need to keep this number below 43%.
● What monthly mortgage payment can you comfortably afford in your budget?
● Are you prepared for closing costs, such as an appraisal or prepaid property taxes?
Your lender will walk you through the process and now you know what you will need to be prepared.
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