Long gone are the days of little to no documents needed to secure home financing. Part of the culmination of the 2008 financial crisis was the result of mortgages in the hands of unqualified buyers with house payments that over-extended their incomes.
Now, you can expect lenders to require many pages of qualifying documents, either virtually or through hard copies, but most likely both. Preparing days or weeks in advance to have the correct financial paperwork helps the lending process move much more quickly.
The following documents and information are the most requested by lenders to process an application.
VA Loans and Certificate of Eligibility
For veteran buyers only.
Past and present service members often use their VA loan benefit to buy a home. This type of loan entails a bit more documentation in the way of a Certificate of Eligibility (COE). In order to receive a COE, active duty members need a signed, current statement of service and veterans will need to show a copy of DD Form 214, with special attention paid to items 24 and 28 which refer to character of service and reason for separation.
Often, a lender has access to the Web LGY system to verify eligibility quickly by submitting an online application. However, some applicants will need to secure the COE through other methods if the VA lacks information.
The US Department of Veterans Affairs has a complete description of the specific groups of people entitled for a VA loan, as well as other options to obtain a COE. It also is a good place to begin reading up on VA home loans in general.
It’s important to have this report as accurate as possible. Consider retrieving yours for free once per year at Annual Credit Report.com. The havoc of a stolen identity or even simple errors will negatively affect how lenders perceive your ability to repay their loan. Keep in mind, lenders do view a specific credit score that might be a bit different from the one you are aware of. Theirs is geared toward the financial capacity to buy a home.
Loan Application Basics
The lender may verbally ask basic questions as he enters the information, but you can also expect to produce hard copies to verify finances.
- Legal Name
- Birth date
- Social Security Number
- Phone numbers and emails
- Marital status
- Ages of children
- Residential history for at least 2 years
Present and Past Employment
You will be asked to provide a list of employers for a minimum of two years, including complete names, dates, and addresses. W-2 statements are traditionally the documents lenders require for employment verification. Lenders like to see stability within the work history.
Proof of Income and Banking Histories
For service members, 2-4 months of Leave and Earnings Statements (LES) are sufficient. Civilians need paystubs for two years if paid by salary. Workers paid hourly may have to show more documentation from the company’s human resources department. Commissions, bonuses, and self-employment income all necessitate verification as well.
Recent statements from checking, savings, investment, and retirement accounts are verified in their entirety. The loan specialists use these as part of a calculation to determine if you can afford to make the house payments and the often hidden expenses of owning a home.
A debt-to-income ratio is a crucial factor in the way lenders consider the applicant’s ability to continuously payback the loan. The total income is considered and fixed debts such as car payments, credit cards, and school loans are taken into account. Similarly, it is necessary to divulge bankruptcies and foreclosures with all of the associated documents attached.
Other Documents Some Applicants Need
There are a variety of circumstances that potential buyers encounter throughout a lifetime, and some of those events have to be considered by the lending institution. If these situations apply, prepare to submit the correct information:
- Current landlord’s contact information and proof of on-time rental payments.
- Explanations of tax liens.
- If more than 20% owner, self-employment business tax returns and year-to-date profit and loss statements.
- Income from rental properties if claimed on tax returns.
- Divorce decrees for considering child support and alimony payments.
- A signed letter from a donor stating gift funds for the down payment are not a loan.
Although much of this documentation is readily available for applicants, some pieces might take a longer period of time to research and correct; for example, an erroneous credit report. Similarly, financial preparedness, such as decreasing a debt-to-income ratio, is a large component to seeking a home mortgage. Allowing enough time to present to lenders your best financial resume serves the buyer in the long run.
Gathering the listed items above is a very good start to the beginning of the loan process. Experienced loan officers are trained to help clients find ways to secure the preferred documents.
By Dawn Smith
Photo attribution by Nick Youngson