In this guide, we will cover the steps in getting qualified and pre-approved and the documents required for mortgage process. There are three simple steps to getting qualified and pre-approved.
The first step is to talk to a loan officer. The loan officer will ask you a series of questions over the phone such as the type of house you are looking for, the price range, property tax information, and homeowners insurance information. Then, your loan officer will go over your credit, income, and employment information. Your loan officer will ask you about your credit score if you know it, your payment history, your monthly debts, your credit payment history, and whether you have been timely on all of your monthly payments in the past 12 months.
You can qualify for a mortgage with outstanding collections, charge-off accounts and older derogatory credit tradelines. However, timely payments in the past twelve months is key. To get an approve/eligible per automated underwriting system, you need timely payments in the past 12 months.
Your loan officer will go over your income and employment. Once your loan officer feels you meet the minimum mortgage guidelines of the loan program you are applying for, the loan officer will direct you to the link to the official mortgage loan application and the link to order your credit report. Once you have completed the online mortgage loan application and ordered your credit report, the loan officer will get alerted and run your file through the automated underwriting system for an automated underwriting system findings report. Hopefully, you will get an approve/eligible per the automated underwriting system which means you are approved. At Gustan Cho Associates, we have no lender overlays so your approve/eligible per the automated underwriting system is your conditional loan approval. We have streamlined on the documents required for mortgage approval.
Documents Required For Mortgage Process For Underwriter
In this section, we will cover the documents required for mortgage process. The mortgage processor will require updated documents originally requested by the loan officer during step one of the mortgage process. All documents required for the mortgage underwriter need to be updated including credit reports, bank statements, paycheck stubs, and other income and credit docs. Below are the documents required for mortgage process for the mortgage processor to get it ready for an underwriter to issue a conditional loan approval:
- Copy of front and back sides of driver’s license.
- Copy of front and back sides of social security card.
- 30-day pay stubs – if a teacher indicates how many months your paid and if it’s semimonthly.
- Two years of W2s, 1099s, and income tax returns.
- Copy of employment offer letter if applicable.
- If you have a bonus advise how often: Bonus, overtime, commission, and part-time income can be used if seasoned for two years.
- 2 months of bank statements for all accounts, checking, and savings, if using a 401k or pension, need two months or the most current quarterly statement.
- Make sure to source large deposits other than pay stubs.
- All CASH deposits have to be sourced.
- If cannot source them, applicants most likely will not be able to use those funds.
- Social Security current year award letter.
- Pension – award letter.
- Self-employed 2 years tax returns if only schedule c, K1s business returns for the 1120s or partnerships. (easier to get them now instead of later).
- 2 years the 1040s need to be Signed and dated.
- Divorce decree if applicable.
- Bankruptcy documents, schedules, and discharge paperwork if applicable.
- Copy of most recent mortgage statement(s) on primary home and all real estate holdings.
Credit has to be pulled. The loan officer will review for any judgments or collection accounts. If anything is out of the normal let them know. There may be additional documents required for mortgage depending on each borrower’s individual situation.
Documents Required For Mortgage Process
Remember this is just the beginning…Once pre-approved get ready for round two. Letters of Explanations will be required for underwriters in the mortgage process. If loan officers are going to be writing letters for the following if it applies to the borrower, they can write the text but borrowers need to sign it:
- Inquiries on credit report anyone that pulled credit for the past 6 months (should only be 120 days) need to explain what it was and if a new debt came of it
- Name changes
- Change of addresses
- If divorced the full divorce decree
- Borrowers with children, then a letter of explanation with all their birth dates and the support agreement
Make sure when placing a deposit on a home purchase to get a copy of the front and back of the check. Get a letter of explanation stating you made that deposit and there holding your check. If you make a second deposit follow the same rule. Also, make a note you’re going to need copies of bank statements showing the money coming out. That the money is seasoned.
Gift Funds Mortgage Guidelines
Homebuyers can use gifted funds for the down payment and/or closing costs on a home purchase. There is a process on how gift funds can be used. The mortgage loan officer will explain.
Need to get a gift letter signed by the donor of the gift funds. Needs to state gifted funds is not a loan but a gift and that it will not get paid back to the donor of the gift. The donor needs to provide 30 days of their bank statements.
Gift funds make sure borrowers tell whoever is giving them this money they have to provide their statements 401ks showing the money going out and need to show the money going into their account.
Income Documents Required For Mortgage Process
Income documents are required. Lenders want to know your past income and employment history and your ability to repay your new housing payment. Two years of W2s, 1099s, and income tax returns are the income documents required for mortgage process.
Federal Income Tax Returns Documents Required For Mortgage
If you are submitting two years of income tax returns, copies of tax returns need to be signed. If you didn’t file make sure you have an extension the following applies:
- All mortgages require transcripts
- If they come back as not filed then you won’t be getting a mortgage until they are
- If you owe money, make sure you’ve paid it and can provide immediate proof
- If you are in a repayment plan, you have to have made 3 consecutive payments to qualify
- If you haven’t you’ll have to wait until those payments are made
Is Verification of Rent Required?
Verification of Rent is proof that you have been making rental payments for the past 12 months. Cash rental payments do not count and the only way that VOR, verification of rent, can be used is by the following:
- If you rented previously you might need 12 months of canceled checks
- Banks validate all the information account holders are telling them
- So share any thoughts or questions prior to getting the file to the underwriting stage so the loan officer can head off any unforeseen problems
- If you are renting from a property management company, a VOR Form provided by the lender and completed and signed by the property manager can be used in lieu of 12 months of canceled checks and/or 12 months of bank statements
- All manual underwriting files require Verification of Rent
Verification of rent is not required by lenders. Verification of rent is required on manual underwrites. However, verification of rent with low payment shock will help borrowers with high debt-to-income ratios on manual underwrites. It is the number of compensating factors the borrowers have on FHA and VA manual underwriting that determine whether or not the borrower gets approved. Normally, rental verification is required on manual underwriting. However, Gustan Cho Associates can waive rental verification for homebuyers who are living rent-free with family to save money for the down payment and closing costs on a home purchase.
Documents Required For Clearing Conditions After Conditional Loan Approval
Remember that your loan officer is only asking for more documentation at the underwriters’ request. The more prepared you are the faster you get the items in. The faster you close.
One of the biggest reasons for loan closing delays is that borrowers do not provide important documents required for mortgage processing in a timely manner. Homebuyers determine the time it takes to close on how quickly they send in all Mortgage Documents Required. This is really just an insight into what you need and what to be prepared for.
Don’t get frustrated or think the loan officer is asking for way too much information. It truly is the most paperwork you will ever put together for a purchase.