Here Are All The Documents I Advise My Clients to Prepare Before Applying for a Loan

I can’t tell you how many times I’ve been working with someone and then during the process they receive a request for documents and have to start looking around for items. It creates confusion and can be stressful for everyone. I encourage my clients to have a binder or electronic file started well in advance of applying for a loan with folders for identification, income, assets, debts, housing history, etc.

And of course, a folder for their dream home. Follow these tips and you’ll be prepared for whatever comes your way.

Start one loan file

Label it with the property address or use.

Create individual folders/sections within the file for identification, assets, debts, income, housing history and other pertinent information as needed.

Keep a copy of anything you provide to your Lender labeled by date you provided it.

Identification and residence

Identification items are pretty cut-and-dry. Your lender will want a copy of a government-issued photo identification, Social Security information and possibly residence in the U.S. documentation. Here are a few things to keep in mind with your identification:

If there are name changes anywhere, the lender may require documentation for those, such as a marriage certificate, divorce decree, or name change documentation.

If there are time gaps or questions regarding your address history, documentation from mortgage statements, landlords, proof of payment, etc. will be helpful to clarify.

If you have an older form of ID that has an old address on it, you’ll likely need supplemental identification as well.

Income

Income is typically documented with paystubs and year-end tax documentation. However, additional information is needed for self-employment, overtime, commissions, bonuses, rental income and second jobs. These items may need a longer history of documentation.

Self-employment items vary depending upon your line of work and loan program. Some typical self-employment documentation could be business and individual tax returns, current YTD profit/loss statements, business bank statements, business schedule of receivable and payable, etc. Keep in mind, income is calculated differently than bank deposits.

We are looking at rules to qualify income instead of simply using deposits or tax return numbers to determine income. It’s important to let us know if anything has changed with income.

Assets and the down-payment trail

Assets are pretty straight forward as well. Your lender will want statements from all accounts used for the loan. This could be accounts you’re planning to use for your down payment and closing costs, accounts that will remain in your name at closing and accounts you’re planning to pay off with loan funds.

Here are some things to think about regarding assets:

Provide complete statements. This includes all pages and accounts shown, even if it’s a blank page. Screenshots are not acceptable.

Label them with the account name and statement date.

Large deposits can be questioned by an Underwriter so it’s helpful to provide documentation of where they’re from. For asset sales, keep the bill of sale/confirmation of sale and make sure the sale is reflected on a bank statement. For transfers between accounts, statements will be required for both accounts – the account the funds were taken out of and the account they were deposited into.

Gift funds have their own requirements as well.

It’s important to send documents regarding assets securely. Follow your lender’s process for secure uploading. Please do not send social security numbers, photo identifications or bank statements by email or text.

Debts and other obligations

Your Lender will want to know about any large monthly obligations not associated with your new home. This will include mortgages on other properties, car payments, student loans, large credit card debt, personal loans, alimony and child support. Here are a couple of things to think about regarding debt:

List any large monthly obligations on a sheet of paper with creditor, approximate payment, estimated payoff amount, phone number and mailing address if known. This can be a lifesaver during the process.

If you’re planning to remove any liens, such as paying off car loans, removing second mortgages, or paying off judgment liens, make sure we know this and keep documentation when they’re released.

Any income or debt that has recently changed should be documented. If you’ve paid off a large item or received a raise, let us know. You’ll probably need a letter of explanation for any of these items.

Letters should be short and sweet. State what happened and attach documentation. We’re looking for facts, not your life’s story.

The above items should cover most of the information you’ll be asked for during your loan. It’s important to remember each lender has their own guidelines and it’s important to follow your Lender’s document checklist. Remember, you’re not shooting for perfection with your file, just clarification.

Your lender and Underwriter simply need to know there are no gray areas with your file. If you follow these tips you’ll be ahead of the game.

More details about assets

If you plan on using gift money, follow the specific instructions given by the Lender on how to transfer these funds BEFORE depositing the gift into your account. If the funds are coming from a sale of investments/businesses/properties/retirement accounts, you will need to document that as well. Basically, if there’s a transaction that occurs to receive the funds, document that transaction too.

Provide statements for any investment/retirement/checking/savings accounts you plan on using funds from or counting towards reserves in the transaction. The underwriter is going to trace anything unusual: big deposits, odd deposits, reimbursements, transfers, sales, etc.

More details about liabilities

Provide recent statements for any and all mortgages, cars, student loans, credit cards, properties, etc. It is rare that all of the terms of a debt are accurately reflected on a credit report, especially the amount you are currently paying each month. Provide additional documents or a court order for things like alimony, child support, deferred student loans, co-signed loans, etc.

If you own properties, provide mortgage statements, tax bills, association dues , insurance, rental/lease agreements , etc. During underwriting, don’t open any credit, buy a car, get a store/furniture credit card, or move money around between accounts. The underwriter has to trace large deposits/withdrawals as well.

Any changes could affect your ability to qualify.

Letters of explanation

These are not a science fiction project, keep them brief and to the point. Don’t speculate as to what they want to see in the letter. Provide explanation(s) as to what happened, be specific with dates, and attach copies of any documents that support what happened.

Common uses include unexplained deposits, credit inquiries, employment gaps, credit report items that do not match up with your address, disputed items, etc. Keep a copy of these with your documentation in case they need to be seen again; it saves you some legwork.

Special situations, including condominiums

If you are purchasing a condo, the entire condo association may have to qualify. They will be looking at association insurance, budgets, reserves, legal issues, number of investors, deferred maintenance, special assessments, etc. There is nothing YOU can provide to get the condo to qualify.

Keep track of any appraisals, purchase agreements, title, insurance declarations pages, etc. This is a living, breathing process. If something changes, such as sale price, credit terms, closing date, or loan requirements, you’ll most likely need an updated closing disclosure/payment estimate or other documentation.

Keep track of anything you receive regarding the transaction. Your mortgage doesn’t have to be perfect, but it can’t have holes in it. Everything should be accounted for.

Keep the file current

Keep all of your documentation in one place so it’s readily accessible. Documents can also “expire”, so updated bank statements/pay stubs may be requested prior to the actual closing. Send those right away via our secure fax/email/upload system.

If you’re self-employed

Self employed buyers have the most difficult time qualifying. It’s not necessarily their income, it’s usually the documentation. Lenders will normally require two years of business and personal tax returns and a year to date profit and loss statement and business checking statements. Its helpful to keep your business expenses separate from personal expenses to help sort out any questionable deposits. Have all your paperwork together beforehand and don’t assume numbers, follow your lenders guidelines on the documentation required. Income is figured on what’s left after you’ve reported all your expenses. Heavy write offs will reduce the amount we can qualify you on. If you started your business recently or your income drastically changes from year to year we may need letters of explanation and additional documentation. One of the most helpful things you can do is speak with your lender before preparing your year-end taxes as it can affect your ability to qualify for your loan. This happens more often than you’d think, I see it all the time here in Florida. Get your ducks in a row ahead of time, it will help expedite the process and take the stress out of qualifying.

Credit: what to check before you apply

Check your credit. Get a credit report and go over it carefully so there aren’t any surprises for you (or the lender) later. If you see anything you don’t recognize, like a collection that should have been removed a few years ago or accounts that don’t belong to you or balances being reported inaccurately, for example, you may want to address it now so that it gets resolved before you apply for a loan. Getting errors resolved can take some time. We don’t want to find out during the loan process that we have to clear up several items on your credit report first.

Lower balances if you can. If you have credit cards with balances, consider lowering your balances. Closing out credit accounts in good standing, especially accounts that have been open a long time, probably won’t improve your score. Leave those open and just lower the balances on cards with high balances.

Freeze your credit once you apply. Once you’ve applied for your loan, it’s important to refrain from opening up any new lines of credit, buying new furniture on credit or cosigning loans for others. Chances are we’ll pull your credit one more time before the loan closes, just to make sure everything is still ok. Between applying for the loan and the loan closing, we need your finances to be stable. It’s important to keep your loan safe.

Timing your application around a move

Remember, from the time of application until you get the keys, financial stillness. Resist the urge for that new credit card or any other big purchases.

Timing can play a factor as well. For example, applying for a mortgage when making changes such as a change in jobs, starting a new business or moving cross-country may complicate the application as lenders look for stability. If there are plans to change jobs it’s best to let the lender know, don’t just assume that you should apply either before or after. Ask the lender when would be a good time to apply.

Timing also has to do with receiving gift funds from family. Gift funds will need a letter of explanation as well as a paper trail. These needs should be planned on before the deposit is due, not that week, so that the bank has ample time to make sure they know where the money is coming from. Same with transfers. If you’re moving large sums of money from one of your accounts to another we will need statements from each showing that money left one account and went into the other, the entire paper trail. Not doing this can mean that when those statements are needed they may not be available and adds another unwanted element of stress to an already stressful time.

Remember that preapprovals have an expiration date. The process can take time especially for home buyers still searching and it’s important to let us know if several months have gone by as it will most likely need an update with current paystubs/statements to keep your preapproval valid and not allow information to become stale.

A practical starting checklist

A picture ID such as a driver’s license, passport, state-issued ID, or military ID

Where you have resided

Recent pay stubs

Name/address/phone of employer(s)

W-2s (employees) or tax returns (self-employed) Depending on your situation, they may also request:

Documentation of self-employment/businesses

Documentation of other residence(s)

Documentation of any name changes This is by no means a comprehensive list of documents that could be requested during your loan process, but it’s a great start. Have these handy before applying for your loan. It’s always easier to sort through a binder that already exists than scrambling for documents at the last minute.

It will make your life so much easier.