If you’ve been researching home loans lately, you’ve probably heard that mortgage lenders are requiring more documents today than in the past. This is half true. They require more documentation than they did during the housing boom. But outside of that, we are simply witnessing a return to normalcy.
During the boom of the late 1990s and early 2000s, there were far fewer documents required for home loans. Those were the days of “no-doc” and “low-doc” loans, industry jargon for mortgages that required very little in the way of documentation. But most lenders have moved away from this practice, and are now requiring as many documents as needed to verify income, debt, assets and employment.
So what kind of paperwork are we talking about? Below, you will find a list of documents required for a home loan. While not entirely exhaustive, this list does include some of the most common items that are needed for underwriting and final approval. Your lender should give you a more complete list when you apply for the loan, or when you get pre-approved before shopping for a house.
Documents Frequently Required for a Home Loan – 2012 Update
I came up with this list by referencing a variety of home loan websites, and then compiling a list of the most commonly requested items. The companies / websites referenced include Bank of America, Wells Fargo, Citi, and a handful of smaller banks and credit unions. I also used the “Documentation Matrix” provided by Freddie Mac (which is explained below the numbered list). So this list is fairly indicative of what you will need when applying for a mortgage, regardless of which lender you use.
Ten documents commonly required for a home loan:
- Pay Stubs — Lenders typically ask for your two most recent pay stubs. They do this to verify your income and employment. They’ll use other methods to verify these things, as well. But pay stubs are usually the primary method.
- Income Statement — We just talked about pay stubs. That’s one of the ways the lender will document your income. For conforming loans, they must verify your “gross monthly income from all acceptable and verifiable sources, with a 2-year history (in most cases) of providing income.” Source: Freddie Mac’s Documentation Matrix. In most cases, the lender must also provide a written analysis of the income you are using to qualify for the loan. This is fairly straightforward for a typical income scenario, but more complex for commission-based and secondary-income scenarios.
- Bank Accounts — There’s a 99% chance you’ll be required to fill out a document with all of your current banking information. This will include the name and address of any bank or credit union where you have checking / savings accounts. You will probably be asked for account numbers and current balances as well. For obvious reasons, you should handle and deliver this information with care. You might be able to enter this information through a secure section of the lender’s website. Otherwise, you can send it by certified mail or deliver it by hand.
- List of Employers — Mortgage lenders are most concerned with your current employer and employment situation. But they may ask for a list of previous employers as well. You might be required to provide a letter or some other document from your current employer, as further verification of your employment status.
- Address — This is fairly straightforward, so there’s not much to say about it. They usually ask for all residences you’ve lived in for the past three years, though some lenders may go back further than that.
- Credit Reports and Scores — While you won’t be required to provide these documents directly to the mortgage company, they still need to be mentioned. The lender will request these items from the credit-reporting bureaus (for reports) and possibly from FICO (for scores). When you complete a mortgage application, you are giving the lender written permission to pull your credit reports from the three bureaus. They use this information to determine how you’ve handled your debt obligations in the past, and how big of a risk you are as a borrower. The cost of retrieving this information will likely be passed along to you, in the form of closing costs. But that’s another lesson article entirely.
- Mortgage History — If you currently own a home, the lender will want to verify the payment history on your mortgage loan. In particular, they’ll ask for a record of payments for the last 12 months. They do this to see if you have a pattern of timely payments, or late payments and delinquencies (the latter could hurt your chances of getting approved).
- Monthly Debts — Your lender will probably ask for a list of recurring debts that you are paying each month, such as credit cards and auto loan payments. They will use this information to determine your debt-to-income ratio, or DTI, which can make or break your chances of getting approved. This is another key document required to get a home loan.
- W-2 Tax Forms — This is another “99% item,” meaning there is a 99% chance these items will be needed during the loan application and underwriting process. You can expect them to ask for your W-2 for at least the last two years. These documents show how much taxable money you’ve earned during the reporting period. Lenders use it to help verify your income, which is a key factor in the approval process.
- IRS Form 4506-T — By signing this form, you are giving the IRS permission to send electronic transcripts (or hard copies in some cases) of your federal tax returns directly to the mortgage company. This is a fairly new document needed for home loans. Well, technically it’s not a “new” document — just newly required. The 4506 form has actually been around for years. The difference is that, in the past, most lenders did not require this document for loan approval. Today, however, most of them do. It is meant to cut down on mortgage fraud, by preventing the borrower from falsifying tax returns to show a higher income level.
Believe it or not, this is only a partial list of documents required to get a home loan these days. Your mortgage broker or lender may request additional paperwork, above and beyond what is listed above. This is especially true if you are using a specialized loan program, or if you have some kind of unique financial circumstances. For instance, military veterans will also have to provide a copy of their DD-214 discharge form to get a VA loan. Self-employed borrowers may be asked for a profit and loss (P&L) statement that also shows their year-to-date earnings.
Freddie Mac’s Documentation Matrix
So where do these documentation requirements come from, anyway? How do lenders decide what kind of documents are needed for mortgage loans? Much of it actually comes from Freddie Mac, the 800-pound mortgage-buying gorilla that was seized by the federal government in 2008. Lenders typically want their home loans to meet, or conform, to the standards established by Freddie Mac. This allows them to sell the loans into the secondary mortgage market, shielding themselves from any long-term risk of borrower default. You’ve probably heard the term “conforming loan” before. This is where the term comes from.
So Freddie Mac publishes a list of documents required for conforming mortgages. Most of these guidelines are summed up in their “Loan Prospector Documentation Matrix,” which I referenced for this article. The matrix is some 20 pages long, so it obviously goes into a lot more detail than I’ve done. But it’s written primarily for mortgage brokers, originators and underwriters, more so than consumers.
If you are really curious about this subject — and you want to dig deeper into the nuts and bolts of mortgage documentation — then by all means do a Google search for the Freddie Mac documentation matrix. It will give you a behind-the-scenes glimpse into the lending industry. It also explains why some of these items are needed, which may be helpful to you.
Bottom line: You don’t necessarily need all of these items just to apply for a home loan. You may need them all eventually, but not right away. So the best thing to do at this stage is to round up some of the most commonly requested items (pay stubs, bank account info, employer info, and a list of your recurring debts). The lender will tell you what other documents they need, and when they need them.