How To Be Prepared for a Real Estate Transaction?
People always ask what documentation they should have available to start the mortgage process. It’s a great question because most of the time once the process gets started borrowers are scrambling to get documents together and it can be intimidating.
The type of documentation you will need will largely depend on the program you will apply for, but for most programs, there are consistent requirements.
Verification of Income
We’ll start with the verification of income (VOI). Verification of income will be handled in a couple of different ways depending on your situation. If you are a W2 earner that earns a salary or hourly you will need at least one month’s worth of paystubs. We say one month because the frequency that you get paid may be different for other people. Some people get a biweekly paycheck, some get weekly, some get monthly, and some get twice a month on a fixed day, for example, every 1st and 15th of the month. Depending on how you are paid will determine the number of paystubs that the underwriter of the loan will require. This is why we say at least one month’s worth of paystubs.
You will need the last 2 years of W2 statements. This will have your income for the whole year. If you are self-employed, you will need to supply your 2 most recent 1099’s.
Another document that also serves as a verification of income is your tax return. You will need your last 2 years of tax returns. If you are going through the mortgage process during the springtime you may be wondering “If I haven’t filed taxes yet, which tax returns do I need to supply”? The answer is whatever tax returns you do have, you will supply the most recent.
For example, if you have still not filed your tax returns for 2021 and it is March 2022, you would supply your 2020 and 2019 tax returns. If the underwriter asks for a more recent tax return later in the process if they expect that you have filed since you applied for the loan, you would have to supply the most recent.
If you are self-employed you will need to provide a Year-to-Date Profit and Loss Statement (P&L). This is a statement that shows in detail where your money is coming and going in a documented fashion. In some cases, depending on the time of the year, the lender may ask for a P&L over the last year.
Verification of Deposits
The next category of documents would be verification of deposits (VOD).
While the verification of income is documentation that proves your income, the verification of deposits shows how much you have in reserves. This is important because the more reserves you have saved up the less risk the lender takes on. After all, it shows that you can weather bad times and still make your mortgage payments. It is important to note that verifications of deposits need to be liquid assets. For example, checking accounts, savings accounts, brokerage accounts, and retirement accounts. Other homes, vehicles, and personal property are not considered liquid assets.
For verification of deposits, you will need, at the very least, the last 2 months of bank statements.
Sometimes I get asked if it is necessary to declare ALL statements. The answer is no, it is usually not necessary. Depending on the loan product, there is a certain amount they are looking for in reserves. It could be 2 months, 6 months, 12 months, or more. If you can satisfy that with one bank account, then that would be sufficient. I have had borrowers give me 5 different bank accounts with $1 million+ combined value before for a $400,000 loan. Although I’m sure that it makes everyone feel secure in knowing you have the reserves to pay your mortgage, this may be overkill and more work for you.
Verification of Identification
This one is easy. You will need to supply proof of your identity. This would be satisfied by your driver’s license, passport, or another form of government-approved identification.
Purchase Documents
Now we will discuss the documents necessary for most purchase transactions.
In addition to the documents we have already discussed, the other document that you would need to supply would be the Purchase and Sale Contract. This has a lot of relevant information that the processor and underwriter will need to process the file successfully.
Refinance Documents
When you are refinancing, there are different types of documents required. In this case, since you already have established insurance, you would need to provide the Homeowner’s Insurance declaration page, sometimes referred to as a dec page. This is so that the new lender that will be refinancing the property can set up the escrow account, if applicable, successfully.
In addition, you will have to provide, in most cases, the current Promissory Note also called a Note. The Note is the document that is signed at the purchase of the property and is the pledge or “promise” to pay back.
This is a basic list of the required documents for most mortgage programs. All programs are different and you will find that for some you will need to provide more or less than this list of documents but this is a solid start that will serve you well in most situations. At the very least, ease the burden of being inundated by too much. If you have these basics available and well organized, it will allow the process to go smoothly.
I hope you took something from this, and you now feel well informed in your mortgage process. Thanks,
