Maneuvering the home loan process is a more tedious and daunting task than it was at the beginning of the 21st century. Previously lenders often approved loans to borrowers without properly checking their level of risk. This caused a tidal wave of defaulted mortgages which sent the country into the Great Recession. Shortly afterwards, new laws and requirements were enacted to ensure that lenders properly vetted their potential borrowers and their ability to repay their loans.
Although the exact forms might vary, it is a pretty safe bet to assume you will need your recent pay stubs, bank statements, W-2 forms and tax returns.
These documents help lenders assess the risk of a borrower with a much higher degree of certainty than was seen in the past decades.
Depending on your unique situation, here are five documents you might need when applying for a home loan.
1. Two Most Recent Year-To-Date Paycheck Stubs (Within 30 days)
Pay stubs help lenders calculate your current earnings. Those who are self-employed or receiving income from other sources will generally be required to show the lender proof with a 1099 form or bank statement.
2. Two Years' Tax returns
To get a better understanding of your previous and current financial situation, lenders usually request to see one to two years' worth of tax returns. Lenders are looking to ensure that your pay stubs are consistent with your reported earning.
3. Bank Statements and Other Assets
To determine your level of risk, lenders often review your bank statements as well as other assets you may possess such as insurance coverage. These documents help lenders ensure you can continue to make payments if an emergency arises.
4. Credit History
Another way lenders evaluate your risk profile is by taking a look at your credit report. A long and varied use of credit paid on time shows home lenders a responsible use of borrowed funds. However, perfect credit is not necessary to secure a loan. Just make sure you are ready to explain any negative items on your credit report.
5. Residence Address - Past Two Years and Landlord Information if Applicable
Not all payments made to a second party end up on your credit report. This is most obvious when it comes to renting a home or apartment. One of the best ways to show financial responsibility and on time payments is to have your current landlord provide a report showing your renting history and punctual monthly payments.
A lender's main objective is to determine if you will be able to make you payments in a timely manner. Some documents will be an absolute necessity, but anything you can provide to help make your case that you are a worthy borrower should be brought to the lenders attention.
At a minimum, make sure you are ready to provide and discuss information about your assets, debts, income, and credit history to prove you are ready to become a home buyer.