When it comes time to apply for a mortgage in 2014, you might be surprised at how much documentation you’ll need when applying for a home loan. Especially if you are a first-time home buyer or someone who has not been through the process since before all the new rules and regulations implemented in the past few years.
The new Qualified Mortgage rules that took effect on Jan. 10, 2014 make this paperwork even more important. To meet the new Qualified Mortgage rules, lenders will be even more diligent in collecting the paperwork that proves that you can afford your monthly mortgage payments.
While the documentation requirements under the new Qualified Mortgage rules might come as a shock to those who haven’t applied for a mortgage since 2008, they are common-sense requirements for the most part.
These are really common-sense rules. The new rules say that mortgage lenders are no longer allowed to throw out the common-sense standards of lending money during boom times, when they might be tempted to overlook long-term financial goals for quick profits. If the rules help that happen, they’ll be a good thing.
Here are the documents you’ll need to supply today to satisfy mortgage lenders:
• Full tax returns from the last two years. You’ll have to provide all the pages from both sets of returns. Your lender requires two years of returns to verify that your household income was consistent. You can request a copy of your past returns by filling out Form 4506, Request for Copy or Transcript of Tax Form, from the IRS.
• Financial statements from the last two months. You can request these statements from your bank or print them yourself if you have access to online banking. Some lenders might also request copies of all your retirement and/or investment accounts.
• Photo ID. Everyone whose name will be on the loan needs to provide a photo ID. Signed sales contract if the mortgage is for a home purchase.
• Proof of homeowners insurance. Lenders won’t give you a mortgage loan if you don’t first take out an insurance policy on your new home.
• Applying for a mortgage in 2014? Make sure this is dated and written on company letterhead. Your lender might also call your employer during the underwriting process to verify that you haven’t lost your job since the time you applied for your mortgage.
• Canceled rent or utility checks. Lenders might request canceled rent or utility checks from first-time buyers to prove you have a history of on-time payments, according to the Consumer Financial Protection Bureau. More common with FHA.
• Gift letters. If someone is giving you a financial contribution to help cover closing costs or a down payment, you’ll need to provide a “gift letter” from the donor stating the amount, that the funds were a gift and do not need to be paid back.
• 1099 forms. If you are self-employed you will have to provide copies of your 1099 forms from the IRS to your lender. These forms show how much money you were paid as an independent contractor from various clients during a year. These forms, combined with your last two years of tax returns, will help prove that your self-employed income is steady. Customers who pay you $600 or more in a given year are required to send you a 1099 form.
• Letter of explanation. If you have had anything in the recent past that may be a hinder to the loan being approved and may effect your credit in a negative way be sure and write a letter of explanation and explain in detail the situation and what the cause was. Also if you have any large deposits on your financial statements (checking-savings) be prepared to explain them.
And last, but not least, make sure and work with someone you trust to do the kind of job necessary and that you deserve done for you. Purchasing a home can be stressful enough without the person you are working with — your mortgage or your real estate agent — making it worse. Treat others as you would want to be treated yourself.
• Ahwatukee resident Aaron Ely is a husband and father who has been serving the community through his involvement in his church as well as his daughters’ schools. He is a senior mortgage consultant with the BNC National Bank Mortgage Division NMLS#260606. Reach him directly at (480) 505-7426, on his cell, (480) 636-6207, or at firstname.lastname@example.org.