Documents Required

Pre-Qualification Mortgage Process

The pre-qualification mortgage process is quickly streamlined and gives the homebuyer a general idea of how much they qualify for on a certain loan program. A pre-qualification is normally done over a phone interview or online. Credit pulls are not necessary on pre-qualifications.

Mortgage rates will be based on the borrower’s credit scores and other risk factors of the borrowers’.

A pre-qualification is an educated guess of whether you qualify for a mortgage. You cannot purchase a home on a pre-qualification. You can shop for a home with a pre-qualification letter. With a pre-approval, the lender will run credit and have you submit the required documents before issuing a mortgage pre-approval letter.

Documents Required For Mortgage-Pre-Approval Leading To Approval

Most mortgage lenders will require the same documents from borrowers when issuing a pre-approval. However, the required documents may vary from lender to lender. Every mortgage lender will have their pre-qualification versus pre-approval mortgage process.

The loan officer will take the consumer’s word on the credit scores, credit history, gross income, assets, liabilities, and source of down payment.

In general, all lenders will require income and credit documents such as W2s from the past two years, income tax returns from the past two years, two months’ bank statements, verification of rent, 30 days of payment stubs, drivers license, social security card, and other documents required. We will review more of the documents lenders require in the following sections.

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What Are The Documents Required By Lenders For Pre-Approval

This section will cover the documents required to start the mortgage process. Driver’s license or other forms of identification include a passport, social security card, individual taxpayer identification number (ITIN), state-issued identification card, or federal-issued ID card. The issue with requiring a valid form of ID is to ensure the lender is lending to a verified person, not someone who has or is committing identity theft.

Income and Employment Documents Required

Proof of income and employment documentation will be required before the start of the mortgage loan process. On government and conventional loans, you need to provide documented qualified income.  The following are the documents required to start the income verification and employment stage of the mortgage process:

• Pay stubs from the past 30 days
• W-2 forms from the past two years
• Two most recent bank statements or 60 days of bank printouts signed, stamped, and dated by the bank teller.
• Personal income tax returns from the past two years
• Most recent end-of-year pay stub if you include bonuses and overtime into income
• Bonus, part-time, and overtime income can only be counted if you have a two-year seasoning.

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Self-Employment Documents Required on Traditional and Non-QM Mortgages

A substantial number of our borrowers at Gustan Cho Associatesare self-employed homebuyers. The team at Gustan Cho Associates believes in our team and the loyalty of each team member. All of our members at Gustan Cho Associates believe that customer comes # 1 no matter what. We are a very close-knit group—every member at Gustan Cho Associates is an expert in bank statement mortgages and other non-QM mortgage loan options.

Documents Required For Self-Employed Borrowers

Gustan Cho Associates has multiple websites. We have dozens of loan programs for self-employed borrowers and will help you reach the next level. The following are the documents required on all self-employed or 1099 forms:

• Personal and business income tax returns from the past two years
• A profit-and-loss statement by your CPA
• A copy of the state or business license, if applicable
• IRS Form 4506-T, which gives the lender access to your tax records
• Source of down payment
• Two months of bank statements
• Additional income information, like Social Security

IRS Income Tax Documents?

All income documents the lender requires must be verified on all salaried or hourly full-time employees.  The lender will require two years of W2s and income tax documents.

Self-employed freelancers and independent contractor borrowers must provide W2s, 1099s, or I-9 forms from their employers, clients, or companies they service.

They also need to provide two years of income tax returns. Mortgage underwriters will pay attention to steady or increasing income for the prior years. Declining income for self-employed borrowers is not looked at favorably.

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How Do Mortgage Underwriters Analyze Credit Reports

Mortgage lenders will pull a tri-merger credit report for each borrower. A tri-merger credit report has the credit reports of Experian, Equifax, and Transunion. If the borrower’s Transunion score is 500, the Experian score is 600, and the Equifax score is 700, the qualifying score is 600.

HUD, the parent of FHA do not allow credit disputes on non-medical collections, charged-offs, and derogatory credit tradelines. The disputes need to be removed. Other government and conventional loans programs may or may not allow credit disputes. It will state on the AUS findings.

Lenders use the middle credit score from the tri-merger credit report. The loan officer will thoroughly review the borrower’s credit report. Credit disputes, late payments in the past 12 months, and other derogatory credit tradelines will be looked at with a tooth comb. Credit scores are what determine the mortgage rates for borrowers.

Bank Statements Requirement

Mortgage lenders require 60 days of bank statements to determine the borrowers’ spending patterns, overdrafts, and the source of the down payment. Overdrafts in the past 12 months can be a deal killer at some mortgage companies.  Mortgage underwriters will carefully look at irregular deposits and require documentation on where the large deposits came from.

The borrower’s balance on their bank statement will determine whether the borrower has enough qualified, seasoned funds for the down payment.

Suppose the borrower’s qualified bank account balance is insufficient for the down payment and closing costs. In that case, the mortgage underwriter will require other asset accounts or a gift for the down payment and closing costs from a family member.

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Investment Account Statements And List Of Debts

Other investment account statements will be required if the borrower does not have sufficient assets in their bank account. The balance and deposits on investment accounts will be checked and must come from verified funds. Investment accounts can be used to source the cash required to close.

Mortgage Underwriters will review investment account statements from 401(k)s, 403(b)s, IRAs, bonds, mutual funds, and stocks, if applicable.

Mortgage underwriters will look at all the borrower’s monthly debts that may affect the borrower’s ability to repay their mortgage. Variable monthly expenses such as groceries, gas and electric bills, water, cell phone, and other variable expenses are not used in debt-to-income ratio calculations. Recurring debts do count in debt-to-income ratio calculations.

What Are Typical Monthly Debts of Mortgage Borrowers

Here are typical common debts that count toward debt-to-income ratio calculations:

• Car loans
• Monthly credit card payments
• Homeowners Insurance
• Homeowners association fees (HOAs)
• Medical bills that are reported on credit bureaus
• Personal loans that report on the credit report
• Student loans

If you have a high debt-to-income ratio, you can have non-occupant co-borrowers or pay your debts down. When you purchase a home, you must pre-qualify and get pre-approved. Real estate agents will require a pre-approval letter from a loan officer to shop for a house.

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