If you don’t know it already, one of the first things you’ll learn when buying a home is you will need to supply a ton of documentation to make sure you’re a good risk. Here’s a look at what those documents are and what you’ll need to give lenders.
Technically, you won’t give a lender your credit report, but you’ll need to allow them access to it, most likely in writing by signing a release form.
If you want to be proactive, pull a copy of your own credit report beforehand and take a good close look at it. If you find any blemishes or errors, you can take steps to dispute or explain those marks before you start your homebuying process. You are allowed to write a statement and attach it to your credit file that explains your side of any negatives showing on your report.
If you have too many late payments, charge-offs, accounts in collections, short sales or foreclosures, it’s going to have an impact on your FICO score.
You are entitled to receive a free annual credit report from each of the three credit reporting agencies, and this might be a good place for you to start.
Current outstanding credit information
If you have current credit card debt, car loans, student loans or other debt you’re paying on a monthly basis, lenders will probably also want details on those accounts, including payment history, monthly amount and total amount of your debt. They will use this to measure your debt-to-income ratio.
As a rule of thumb, lenders like to see that your housing debt and other recurring debts add up to less than 41% of your gross monthly income.
Lenders will want to see your full recent financial and earnings history, so you will also need to supply copies of at least the last two years of your Federal tax returns. Most of the time, lenders will ask you to sign a Form 4506-T that allows the lender to request a copy of your returns directly from the IRS. You may be asked to provide a signed and photocopied return instead.
Lenders will be checking to make sure your reported earnings on your paystubs are consistent with what you report to the IRS, as well as making sure there are not huge income fluctuations from year to year.
Pay stubs/proof of income
Lenders will want to see your pay stubs from at least the past month, and perhaps longer. They may also ask for two years of W2 forms as well. This gives them a much better idea of your current financial health by gauging your recent earnings. If you have other sources of income or if you’re self-employed, you will need to provide other proof such as 1099 Forms, direct deposits, and other related documentation.
Proof of additional income
If you receive other forms of income such as Social Security or disability payments, pension income, dividends or bonuses, you’ll need to account for it. You aren’t required to disclose child support or alimony payments made to you but it may be in your best interests to do so.
Bank and asset statements
Lenders will want to see two to three months of bank statements as well as any asset statements for things such as stocks, bonds, mutual funds, retirement accounts and related documents. This is done some that a lender can be sure you have several months of reserves that you can tap for emergencies. They will also use bank statements to verify the nature of your down payment and how long it has been in your account.
You may be asked to provide a longer employment history in addition to recent paystubs from an employer. Lenders like to see a steady employment history which translates into a steady income and loan repayment source. Compile a contact list documenting your last two years of employment. Include all company names and address, along with names and contact information for your former bosses or HR representatives.
If you’re self-employed, a contractor or operate a business, you’ll need to supply tax returns and year-to-date profit and loss statements.
Current driver’s license
This will help verify your identity. You can bring an original if you’re meeting a lender in person, otherwise provide a photocopied version. Make sure the license has a photograph of you on it. If you don’t drive, be prepared to provide some other form of photo ID.
Social Security number
This is another form of identification you’ll need to provide. It can be verified by providing a copy of your Social Security card, on tax documents or other documents that show the number. Your Social Security number will be required to pull credit reports and request tax returns from the IRS.
Mortgage or rental history
If you currently own real property or have owned property in the past, you may be asked to provide proof of ownership and/or the terms of the sale.
If you don’t own a home and you’re buying for the first time, you will need to demonstrate you can pay rent on time. This may include providing proof of canceled rent checks or requesting a document from a landlord that shows your payment history. This is especially important if you don’t otherwise have an extensive credit history. Expect to provide two years of documentation, although requirements will vary by situation and by lender.
If a friend or a relative is helping you buy a house by giving you money, you will need to provide proof in the form of a written confirmation gift letter. It should specifically state that the funds are a gift and not a loan. Also make sure the letter states the amount of the gift and the relationship of the person giving it to you.
If you’ve been divorced, be prepared to present your divorce decree that will spell out any court orders related to child support and alimony income or expenses.
Bankruptcy or foreclosure
If you have been through a bankruptcy or foreclosure, your lender will want to see the documents related to either of these situations. A lender will be able to tell you how long your credit will be impacted and how long you’ll need to wait before getting back in to the housing market.