The average time it takes to get a home loan and complete a mortgage application is between 30 and 60 days. Most lenders won’t approve a loan until they’ve gone through the applicant’s income, assets, debt, and other financial details.
During the underwriting process, they may request additional documents to better evaluate the prospective borrower’s risk level. They approve or deny the loan only after they have everything they need.
Because of this, it’s generally wise to prepare any financial or mortgage documents in advance. This can streamline the process and increase the applicant’s approval odds. With that in mind, here’s a complete checklist of the required documents to qualify for a mortgage.
What Documents Do You Need to Apply for a Mortgage?
The required documents to qualify for a mortgage can vary based on the applicant’s financial and job situation. However, lenders typically require many of the same mortgage documents, such as proof of income, rental history, and credit history. Most of these are also documents needed for the mortgage pre-approval process.
With this information, the lender can determine whether the applicant’s ready to handle a home loan. Without these documents, it may be impossible to qualify for a mortgage at all. So, before applying for a mortgage, here’s a mortgage loan document checklist to get started.
1. Income and Assets
The income and assets section of a mortgage application shows the lender whether a prospective borrower can reliably repay the loan. Lenders use this information to determine the borrower’s financial stability over time. Required mortgage documents include:
- Pay stubs: Lenders often request recent pay stubs in digital or paper form, indicating the borrower’s income.
- W-2s: Most lenders will ask for the past two years’ W-2 forms to show stable income and determine their financial health.
- Bank statements: Two or three months of bank statements can show a lender if the borrower can pay their down payment and closing costs.
- Assets: Commonly accepted assets include retirement or investment accounts (ex. 401k or IRA), certificates of deposit (CDs), and stocks. Income from a rental property or Social Security may also suffice.
- Gift letters: Some lenders consider gift letters indicating a family member will pay some or all of the down payment, too.
- Contracts: For self-employed individuals or business owners, contracts that show ongoing work with clients may suffice. The contracts should show a start and end date, as well as the expected income.
- Documents for business owners: Contracts, business insurance, and stable income, and a business license may be accepted as proof of income.
- Other documents: Child support or alimony can also serve as proof of income if payments continue for three or more years after applying for the mortgage.
2. Spending, Expenses, and Debts
Most lenders need to see the borrower’s debts and expenses as part of the mortgage application. This includes things like student loans, credit cards, auto loans, medical bills, other mortgages, and personal loans. With these loans, including the account type and number, remaining balance, lender, etc.
Other financial liabilities or debts include regular job-related expenses, child support, and alimony payments. The lender will use this information to determine the applicant’s debt-to-income ratio (DTI). Individuals with a DTI higher than 36% may not qualify for a mortgage loan.
3. Rental Payment History and References
Rental payment history and references may also be required as part of the mortgage loan document checklist. This is especially true for those with poor or limited credit or financial history. Acceptable mortgage documents include:
- 12+ months of on-time rental payments
- Landlord’s contact information for at least two years
- 12+ months of canceled rent checks (checks the landlord has cashed)
4. Tax Returns
Most mortgage lenders want to see two- or three years’ worth of federal and state tax returns to show a steady income. These documents are also needed for a mortgage pre-approval letter. The reason for this is that they indicate the individual’s earnings and any claimed deductions.
Self-employed individuals or business owners may also need to include profit-and-loss statements or a cash-flow analysis form with their mortgage application. For those with a business, both a personal and business tax return is often required. Some lenders also require a completed IRS Form 4506-C that lets them access the applicant’s tax records.
5. Credit History
Having a good credit history is important as it helps determine things like mortgage interest rate and loan type. People with a good credit score and few to no negative items on their credit reports also have higher approval odds.
However, negative items like late payments, high credit utilization, foreclosure or bankruptcy can make it difficult to qualify for a mortgage. Some lenders will outright reject borrowers with too many negative items. Others will request a letter of explanation clarifying why they exist.
Although it’s not necessary to provide your credit report with your mortgage application, it’s wise to check yours before applying for a mortgage. That way, you can get an idea of your approval odds. You can also check for any errors bringing down your score and dispute them.
Home loan applicants with a limited credit history or poor credit may have trouble qualifying for a conventional loan. However, it may be possible to get an FHA loan instead. Keep in mind, the credit requirements depend on the loan type. For example:
- FHA loan – 580 credit score with 3.5% down payment (or 500 credit score with 10% down payment)
- Conventional loan – 620+ credit score
- VA loan – 620 credit score
6. Photo ID & Alternative Data to Help a Thin Credit File
People with a limited credit history or few credit or loan accounts may have a thin credit file. In this case, lenders may accept alternative documentation for the mortgage application. This includes payment activity for other bills, such as:
- Cell phone
Some lenders accept large amounts of savings or other investments as well.
As for photo identification, the following documents are usually accepted:
- Driver’s license
- Social Security card
- Green card or approved visa copy
- Active employment or employment offer
Ultimately, the required documents to qualify for a mortgage depend on a few factors, such as the mortgage type and the individual’s employment history. A typical mortgage loan document checklist includes:
- Valid ID
- Credit history
- Employment history
- Proof of income and assets
- Debts or other financial obligations
- Rental history
Mortgage lenders want to make sure you can afford the payments before approving a loan. Before applying for a mortgage, calculate how much you can reasonably afford to ensure it’s the right decision for you. Then, gather everything together to make the home-buying process as streamlined as possible.