Why Lenders Require Documentation
With the amount of paperwork required to get a loan, it may seem like mortgage bankers are tree-killing paper-lovers. But there are good reasons for lender’s requiring so much documentation: they need to do all the due diligence to make sure you can afford the loan. Lenders want to make sure you are good investment and that you won’t default on the loan. Making sure you can afford the loan benefits both the lender and you.
Income verification
Pay stubs, W-2s and tax returns, oh my. You’ll need documents such as these to verify your income. These documents back up the information you put on your application. Lenders are looking for stability and proof of income, especially if you are self-employed or rely on sales commissions or bonuses.
Account statements
Lenders will want proof of balances in your deposit and investment accounts to prove that you have the cash to cover your intended down payment and closing costs. Some lenders require proof that you have enough cash on hand to cover two or three months of mortgage payments.
Debt statements
A lender may want to verify the minimum payments due on your credit cards and installment loans. They use this information to calculate your debt to income ratio, to help determine that you can afford the loan.
Alimony and child support
If you listed this income as a part of your application, court documents verify to the lender the amount and duration of those payments. A separation agreement also helps explain the status of any joint accounts listed on your credit report.
Self-employment documentation
If you are self-employed, your lender may require an accountant-prepared profit-and-loss statement in addition to your tax returns.
No documentation loans
Some lenders offer low- or no-documentation loans to borrowers with exceptional credit. You may pay more in interest for these loans, but if your income is sporadic or very complex, these loans can be a good option.
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