Before you begin the process of purchasing a home, you must first prove that you are responsible and capable of paying off the loan you take out. As such, lenders are obligated to collect specific documents to review before they begin approving your application for a home loan.
Before you can borrow money for a home loan, lenders want to know that you have steady employment. With steady employment comes a steady income which lenders see as a signal that you are responsible and financially stable, provided you are trying to purchase a home within your means.
You must provide your lender documents like your W-2 forms from the past two years, as well as pay stubs from the past month or two.
If you are self-employed, you must work a little harder to get approved for a home loan since self-employed applicants are considered high risk. As such, you must provide K-1 and business tax returns to your lender for review.
Your lender will also need to look at your bank statements and other financial records such as:
Naturally, lenders need to verify that you are who you say you are to avoid fraud and identity theft. Therefore you must provide identifying documents:
Everyone has debts, be it student loans, car loans, or credit cards. Lenders will require a list of these debts before approving you for a home loan to help ensure that you are not taking on any more payments than you can afford. Remember, lenders want you to be able to repay your loans. If your monthly expenses exceed your household income, lenders not approve a loan as you are already paying more than you can afford each month.
Your credit score will also be under scrutiny. A good credit score benefits you by simplifying the loan process, and making it easier to negotiate larger loans and lower interest rates.
It’s important to note that as of July 1, 2017 credit bureaus don’t have to collect tax lien and civil judgement information in order to calculate your credit score. While this change can benefit you, it is important to offer up this information to your lender so you can help them make an informed decision as to how much you can afford to borrow.
Please note: This list of documents is not all-inclusive and may vary from lender to lender. Talk to your financial advisor and lender about required documents and what to do if you cannot find a specific document. Practice good, accurate record-keeping skills to make borrowing and providing documented proof easier.
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