Getting your mortgage docs in a row

Getting ready to buy your dream home? Whether you’ve already started doing your research or aren’t quite sure where to begin, we’re here to help you get home. We’ve taken our best homebuying guidance and broken it up into bite-size to-dos.

Many people find getting pre-approved for a mortgage straightforward—in most cases a pre-approval requires answering a few questions about your income, assets, the down payment you plan to make, and the lender pulls your credit report to verify your credit score. But before you can close on a home or refinance a property, an underwriter will need to verify all these details to approve your mortgage. To do that, they’ll need docs, docs, docs to verify your income, assets, and anything else that could impact your loan.

Why do mortgage lenders need so much paperwork?

Lenders are risk-averse by their very nature. Since a mortgage entails years of payments, they need to be sure your loan is affordable both now and later. While getting a snapshot of your current finances is a start, lenders also do their best to predict your future ability to pay.

Lenders want to know:

• Your current salary and proof of your earnings

• Your overall income including the specific details (bonuses, commissions, etc.)

• Your credit score and the type and amount of your other debts

• The size of your down payment and your source of funds

• Potentially sensitive information, like alimony payments (and legal documents to prove they exist)

Getting your documents in order, especially if there are any special circumstances in your financial profile, can help ensure that your application process goes smoothly and quickly. The countdown-clock-to-closing starts ticking as soon as a seller accepts your offer on their home and before you know it your loan consultant will start requesting documentation for the underwriter approval process. Having everything on hand will help you breathe easy. It also helps your lender offer you a mortgage that you can pay back.

What paperwork do you need to get a mortgage?

Before the underwriter can approve your mortgage, they'll need to know you have the income to pay for the loan, that your finances are not overstretched by existing debts, and that you have assets to cover any closing costs. And in case your economic circumstances change, they’ll also want to see that you’ve got enough of a financial cushion to cover your expenses until you’re back on track.

To verify your income, lenders typically need:

• 1 or 2 years of personal tax returns

• 1 or 2 years of business tax returns (if you own more than 25% of a business)

• 1 or 2 years of W-2s or 1099s

• 1 or 2 months of bank statements

• Access to your credit score and credit report

• Proof of any alimony or child support payments

To verify your debts, lenders typically require:

• A monthly bank statement of any new accounts you’ve opened

• Release documents confirming any derogatory events on your credit report have been settled

• If you’re refinancing, a mortgage statement and your homeowners insurance policy (confirmation of homeowners association dues and a solar panel agreement may also be necessary)

• If you’re divorced, a full copy of your divorce decree to verify any payments that form part of your ongoing debts

• If you own other property, mortgage statements, your homeowners insurance policy, and confirmation of the homeowners association dues

To verify your assets, lenders typically want to see:

• At least 2 months of bank statements

• Documentation of any large or recurring payments, or large deposits that are out of the ordinary

• If you’re using funds from your retirement account, the account’s terms of withdrawal to ensure you can use these funds without unexpected penalties

You can explore a detailed list of all the documents you’ll need here.

How do lenders use mortgage loan documents to verify your income?

Lenders look at your employment income differently depending on your job’s pay structure. For example, base W-2 income is seen as stable because your employer has pledged to give this minimum amount to you.. Less predictable types of income such as commissions, bonuses, overtime pay, self-employment, RSU income, or part-time/seasonal employment are seen as less stable because it’s more difficult for lenders to determine how consistent this income will be in the future. All this is to say that some incomes need more verification than others. Self-employed borrowers will need to provide more paperwork than the everyday W-2 worker.

Lenders look at your tax returns to check that the income that you reported on your mortgage application is also stated in your tax returns. Any income that doesn't show up on your tax returns can’t be used to qualify for your mortgage. Lenders are also looking for tax deductions that decrease your income for loan purposes. (Depreciation expenses for things like your car, office equipment, and appliances don’t actually cost you anything so they don’t reduce your income.) If you own a business, lenders will also look at the business structure, how much of the business you own, and how long you’ve owned it.

Now that you know what documents you’ll need, get an accurate idea of how much home you can buy. In as little as 3 minutes, you can get pre-approved with Better Mortgage and receive a free, no-commitment pre-approval letter. They’ll show you a range of interest rates to choose from so you can set your house-hunting budget. And by working with a Better Real Estate agent and funding with Better Mortgage, you’ll save $2,000 on closing costs*, and an additional $8,200 on average over the life of your loan.**

*See Better Real Estate discount fine print.

**The average lifetime savings estimate is based on a comparison of the Freddie Mac Primary Mortgage Market Survey’s (PMMS) 30-year fixed-rate mortgage product with Better Mortgage’s own offered rate for a comparable mortgage product between Jan ‘20 - Dec ‘20. PMMS is based on conventional, conforming fully-amortizing home purchase loans for borrowers with a loan-to-value of 80 percent and with excellent credit. Better Mortgage’s offered rate is based on pricing output for a 30-year fixed-rate mortgage product with a 30-day lock period for a single-family, owner-occupied residential property and a borrower with excellent (760 FICO) credit and a loan-to-value ratio of 80 percent. Individual savings could vary based on current market rates, property type, loan amount, loan-to-value, credit score, debt-to-income ratio and other variables.

Related reading:

• Assembling your homebuying team

• Knowing your mortgage numbers

• Understanding your home financing options

• Breaking down mortgage rates and costs