Mortgage Documents (What Do You Need To Apply?)

Certified Mortgage Advisor
NMLS 1701021
Published 
June 20, 2019

What we need to know about Mortgage Documents

Now, we're talking about what documents do you need to get your mortgage approved? So you've probably heard maybe some horror stories or just a lot of different problems that people run into when they're getting a mortgage. And then they have to submit a lot of documents to a lender.

Things that we need to learn

So we're going to talk about what documents you can expect to turn in. Maybe some one-off documents that might be a little unique for your situation, and then how you can speed up the process to make it as easy as possible because no one actually likes getting a mortgage. We want to go through that process as quickly as we can, and this guide is going to help you do that in the best way possible.

Why do lenders need documentation?

So this kind of brings us back to the housing crash. So if we remember 2008, when we had all of these issues with mortgages and the housing bubble, largely stemming from not enough documentation and predatory lending practices. So what was happening prior to 2008 is you could walk in as a buyer. You could just say what income you made, and no one would actually check thoroughly to see if that's what you made. So ended up happening as people were taking mortgages that they simply just couldn't payback.

Results of applying with no documentation

So they're facing foreclosure modifications, having to sell. And even now I'm running into people who are still facing problems from predatory lending practices that were happening prior to 2008. So this is a big problem, and obviously, we don't want this to happen anymore. So that's why all these documentation requirements are in place is to protect you as the buyer and to protect lenders and ultimately protect our economy.

Government law to protect the lender and the economy

So what happened after the housing crash is the government put in a couple of laws to make sure that if you go for a home loan and you get approved for one you have a really high chance of paying that back, and it's not going to be a hardship to pay back that mortgage. So one of those laws is called ATR.

ATR

It's the Ability to Repay, but basically, it's saying that what you have on your loan application we need to make sure that with your income and your assets your liabilities, and your credit, you're able to afford a mortgage with a high a chance of success.

Patriot Act

So now, not only laws like ATR or the Ability to Repay, but also even laws that don't directly relate to finance things like the Patriot Act that was created after 911, have put in-laws to look at money laundering. So that's why lenders ask for bank statements is to check for things like money laundering or any terrorist activity through bank funds.

So we create all this together and it creates a lot of requirements and documentation that can be required for a mortgage.

Requirements for a mortgage

Let's walk through what does like it's like the happy meal of mortgage documents, except it might not be as joyful, but if you are like most people in your employed there's going to be a standard set of some documents that you'll most likely be asked for when you go through the mortgage application.

Identification Card

So number one is some form of ID. So normally this is a driver's license.

Tax Returns

After that again, if you're employed by a company, normally you'll be asked for the past two years of your 1040 tax returns. So this shows your income along with any itemized deductions as along with your net income. So two years of your 1040 also two years of your W2's are the document that your employer. At the end of the year, showing you how much you made either in wages, commission, overtime, tips, anything like that? They'll break that down for you. So normally the past two years of W2's, you might also receive 1099 if you've done some self-employed work. So driver's license, 1040, W2's are 1099.

Paystubs

Also 30 days of your pay stubs. Most people are paid bi-weekly so normally this is two pay stubs giving us that full 30 years and you can see how important income is or look at income from a couple of different angles to make sure that we follow those abilities to repay regulations.

Bank Statements

You'll also be asked for about two months of bank statements. The main thing that the underwriters looking for in those bank statements is number one. They want to see that you have the funds to be able to close on a house. If it's going to make you $5,000 cash out of pocket to purchase a home, the underwriter wants to make sure that you have that money there.

Lenders need a buffer

Then when you close, you're not going to completely wipe out your bank. Because they don't want to create any hardship with you purchasing a home. So they're making sure you have those funds. They're also making sure that no funds were borrowed because we can't borrow funds that are unsecured to purchase a house.

What the government do to protect out economy

They're also tracking for any large deposits to make sure there's no money laundering or any sort of terrorist activity happening. I know it sounds a little extreme, but this is just part of what the government has given us to use here.

Again, ultimately, all of these are set up to protect you as the buyer and to protect our economy to make sure that you can continue to get lower interest rates because not everyone else's defaulting because they've been vetted just as well.

Let's make the process easier

So how do we actually make this process a little bit easier since there are a lot of documents sometimes asked for, and these are just the? Standard documents that you'd be asked for. If you have a more unique scenario, maybe you pay or you receive child support or alimony, things like that would be documented.

If you've had a bankruptcy, you would need to send in your bankruptcy documents your foreclosure documents. If you have basically anything that's pertaining to your income, your credit liabilities assets are going to be documented and put into the loan application to make sure that you can get approved for that loan.

Upfront as possible with your lender

So the best way to streamline this process is number one to be as upfront as possible with your lender, whether they working with a loan officer or mortgage broker or lender whatever mortgage professional you're working with.

Your lender is your advocate, be honest to them

You want to be honest with them because they're going to be the ones who are going to be your advocate. They're going to help you go through the process, right? They're not going to hear something and then turn you away. They're going to help you find a creative solution, at least the good ones. Be honest and upfront.

Be patient collecting your documents

Also, expect to spend a bit of time collecting these documents upfront. Anything you think that might be necessary, go ahead and collect that before you start an application that will speed up the process a lot quicker.

Three-step process

What do we do when we go through a three-step process that we take all of our clients through. So step one we do an application and we collect all of the documents upfronts. So the reason why I collect them all upfront is so there are no surprises. Everyone knows what to expect, and then we can manage any problems or hurdles at this stage in the process before you have a contract, and before there's all of the stress of moving.

1. Go through the application

So step one, we go through the application, then we document everything. Then, we get that all wrapped up together.

2. Review

Step two, we review really clear loan options and compare different loans side-by-side so everyone can see their rates, their payments, and their total cash out of pocket.

3. Pre-approval

Then finally we do a fully underwritten preapproval which means everything's done with the mortgage process, except for things like the appraisal and the title, but you're ready to go. That you're going to close on a house. All the documents have been taken care of. Now you can go start shopping for a home.

So it's applying, sending in documents, reviewing loan options, and shopping for a house. So hopefully that gives you a really clear idea of what's going on in the mortgage process. There can be a good amount of documents that are asked for, and it's not the most fun to go and try to collect those. That's why you want to do that work up front.

Know what to expect

If a lender is asking you for documentation, it's not because they're trying to make the process difficult. I hate asking for a lot of documents. I know that everyone else does as well. But at the end of the day, we're all trying to accomplish the same goal. All trying to close on a house. So anything we can all do to make that process as easy as possible. We're going to shoot for.

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