If you're applying for a mortgage in the near future, start organizing your papers now. During the loan application and approval process, you'll need to provide copious amounts of documentation to verify your financial position and show the bank that you can take on a mortgage. Start gathering your documents in advance to expedite the process.
Your lender will want to verify the amount and stability of your income. You will need to provide recent pay stubs (usually for the past two or three months), as well as your tax return information from the previous two or three years. If you are self-employed, be sure to track all of your income so you can provide a detailed account of what money you receive as compensation. If you receive any additional income, like alimony or child support, you will also need to document these transactions.
If you have any assets or investments, your lender will need these to be documented as well. Assets might include stocks, mutual funds and any real estate you might own. Your lender will also need to see proof of the available funds in your bank accounts, as well as any documentation for individual retirement account, 401(k) or other investment accounts you might have. Make sure that all documentation is recent and that it lists all account numbers and other important information.
Your lender should ask permission to run a credit report in order to verify your credit scores, which usually requires a small charge. A credit report review also provides a list of your monthly obligations and recurring payments, such as car, credit card and student loan payments. These numbers play a large role in calculating your debt-to-income ratio, which is one figure lenders use to determine financial ability to repay the home loan. If possible, review your credit report before you apply for the loan to make sure there are no discrepancies.
Expect the unexpected during the loan application process. When your loan application moves into underwriting, you may need to provide documentation to explain any transfers or deposits into your account. If you depend on gift funds to make your down payment, discuss the necessary documentation with your lender. If you have filed bankruptcy in the past seven years, you will also need documentation to verify the dates and other details of the bankruptcy. Of course, you'll also need a copy of the approved purchase contract, as well as verification of any earnest money funds.
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