About tax returns
You will be expected to provide tax returns, including all the pages and schedules. The returns will be scrutinized for unreimbursed employee business expenses, self-employment business losses and signs of loan fraud, such as reported income that doesn't match your W-2s.
You'll be required to sign IRS Form 4506-T, which allows the lender to get a transcript of the tax return from the IRS. It's not a bluff: The lender will get the transcript of your tax return straight from the IRS and compare it with the copy of the return that you gave to the lender.
Ordering your tax transcript "has become an industry standard as fraud prevention," says Brad Blackwell, executive vice president and portfolio business manager for Wells Fargo Home Mortgage.
About the list of debts
All the above documents (W-2s, paycheck stubs, tax returns) tell the lender how much you earn. The list of debts tells the lender how much you owe each month. The lender then calculates your debt-to-income ratio, which is key to the loan decision.
Percentage of monthly income that is spent on debt payments, including mortgages, student loans, auto loans, minimum credit card payments and child support.
Debt payments / income
Example: Jessie and Pat together earn $5,000 a month. Their total debt payments are $2,000 a month. Their debt-to-income ratio is 40 percent ($2,000 divided by $5,000 = 0.4).
About the list of assets
The lender will want current bank statements, and possibly previous bank statements, too. These documents will be scrutinized to verify that you're telling the truth about the source of your down payment money. If you saved up for your down payment, without gifts from family, your bank records will verify that.
The lender will want to know your other assets, too. The lender wants evidence that you will have enough savings and investments to weather unexpected expenses after you have paid for the down payment and closing costs.
About canceled rent checks
Often, renters will be asked to supply 12 months of canceled rent checks and bank statements showing that the rent was paid on time. Renters without that documentation can provide the landlord's name and contact information for payment verification.
For current homeowners, the lender might ask for canceled checks and bank statements showing that the mortgage was paid on time. Any late payments are likely to show up on the credit report, too.
Speaking of the credit report
The lender will check your credit reports. Months or weeks before applying for a mortgage, check your own credit reports. Correct any errors, such as:
- Accounts listed on your report that don't belong to you. Often this is mistaken identity; sometimes it's a sign that you're a victim of fraud.
- Notations that say an account is open, when you have paid it off and closed it.
- Incorrect details regarding credit limits, amounts owed, account opening dates.
Other documents you might have to provide
- Home sale contract, including the purchase price.
- Proof that a gift isn't a loan.
If you receive a cash gift or grant toward your down payment, you'll have to provide a letter from the giver that declares that the gift isn't a loan. The lender might even want a canceled check and the giver's bank statement.
"It's not that big a deal, except that Mom and Dad don't like to give (their kids) a copy of their bank statement, especially if there is a lot of money in the account," says Joe Metzler, who heads Mortgages Unlimited in St. Paul, Minnesota.
- A lease agreement, if you're renting out your former home.
- Proof of rental property income.
- If your income includes rents from investment property, it needs to show up on your tax return. Canceled rent checks and bank statements showing those deposits might be OK if the property was purchased in the current calendar year.
- Proof of a child's age if child support is counted as income.
- Bankruptcy discharge papers.
- A copy of a divorce decree might be requested in some cases.
Loan documentation tips
When asked for documents, provide them promptly. Never cross out, white out or alter any information on a document. "If you white out anything, it's not a valid document for our purposes," Miller says.
Always provide every page of every document -- even the pages that say "This page is blank." "They want that, too," says Peter Ogilvie, president of First Residential Mortgage Corp. in Santa Cruz, California. "If it says 'page one of seven,' they want to see all seven pages."
Finally, remain ready to supply updated documents. "Documents expire after 60 days," Blackwell says. "So if homebuyers take a long time in their house-hunting effort, we won't need the whole thing again, but they will have to bring the most current paycheck and that type of thing."