Mortgage lenders require certain documents to verify your income, assets and debt levels. This may include your current mortgage statement, the purchase and sale agreement for the home you plan to buy as well as investment statements or an assessment notice from Canada Revenue Agency.
This article serves as a resource to help you gain a basic understanding of what documents are necessary for mortgage transactions and why.
Photo ID
Mortgage lending lenders have increasingly stringent documentation requirements. With this checklist as your guide, stay organized and ensure you have everything ready for your lender.
Verification of identity requires photo ID such as a driver’s license, state-issued identification card or other official document with barcode or magnetic stripe technology. A valid Social Security number will also be necessary in order to run a credit check.
Lenders need proof that you can afford your mortgage payments by gathering documents demonstrating income and assets. They will require W-2 forms from the past two years, tax returns and pay stubs; these documents allow lenders to determine whether your earnings have remained consistent over time and if there have been any major fluctuations in debt payments or asset levels.
Employment Letter
Lenders want proof of your employment and income to ensure you can afford your mortgage payments, and an employment letter is one way that this information can be provided.
Letters should come from either their HR department or authorized supervisor on company letterhead and include details regarding position, salary information and whether or not this will be full time, part time, contract or freelance work.
Make sure that your letter only includes information required by your lender, otherwise you could end up with too much or irrelevant data. If you are self employed, additional documentation such as tax returns, group certificates and financial statements will likely be required of you.
Income Documents
Lenders will require proof of other sources of income, such as alimony, child support or separate maintenance payments; Social Security benefits; investment assets (checking and savings account statements); rental property profits and interest-only mortgage statements.
Lending institutions may request copies of your credit report to gain insight into your debt management skills and determine whether you can meet new mortgage payments.
If you are self-employed, lenders require two years’ of tax documents as well as an audited profit-and-loss statement for your business to help verify your financial standing and give them confidence that your monthly debt obligations can continue to be met after closing day.
Bank Statements
As part of their application process, mortgage lenders examine every facet of your financial background – such as your credit report, income documentation and bank statements.
Mortgage lenders want to verify that the down payment you have saved is accessible, from where it came and if it has any maturity.
Lenders typically recommend that borrowers present two months’ bank statements as lenders will want to see any loans taken out within this two month period already appear on your credit report. Furthermore, mortgage lenders like to review multiple bank statements in order to assess your overall cash flow; this is especially essential for self-employed borrowers.
Property Tax Statement
Taxes are an unavoidable expense for all homeowners, serving to support community safety, schools, and infrastructure. Mortgage lenders will usually require one to two years worth of tax returns and pay stubs from potential borrowers in order to form an accurate picture of their finances.
Your property tax statement is an official assessment of your home’s value that’s used to assess property taxes. It outlines its real market value (RMV), assessed value and any exemptions or delinquencies due, along with any exemptions or delinquencies owed; in addition, it outlines any local government taxes paid including to cities, counties, regional governments and special districts, bond levies approved by voters as well as bond levies that were approved.
The required documents for a mortgage application vary depending on the type of lender, but generally involve photo ID, employment letters, income documents, bank statements, property tax statement and credit report. It is important to stay organized and ensure all documents are ready in order to expedite the process and gain approval of the loan.
