Taking out a mortgage requires lots of paperwork. Typically, you have to provide your lender with a couple of years worth of W-2 forms, a couple of years of tax returns, information on any debts you currently owe -- and information on your savings accounts, checking accounts, money market funds and retirement accounts. If you're married, your spouse has to provide the same information.
Confirming Financial Strength
Your house is probably the biggest single purchase of your lifetime. Before lending you that much money, the bank wants to know you're good for it. Income statements show how much of a monthly payment you can make. Bank statements show you have the money to pay closing costs and make the down payment. If you can't do that, you can't afford the house. It's better for everyone if the bank can crunch the numbers and figure that out early.
Just having money in your accounts isn't always enough. The bank wants to know that your savings have been sitting there a while, so you'll have to bring in at least two months' worth of statements. If you just put the money in right before you apply, the loan officer will have questions. Part of the worry is that you deposited borrowed money. That defeats the purpose of the down payment, which is to put your skin in the game so you have something to lose if you default.
Normally, lenders don't want you paying more for housing -- including mortgage, taxes and insurance -- than 28 percent of your gross monthly income. If you can show you have substantial cash reserves, the bank may be more relaxed about that. If your loan is guaranteed by the Federal Housing Administration, for instance, you can go as high as 29 percent normally. With good reserves, the lender can allow an even higher housing payment/income ratio than that.
When you shop around for a mortgage loan, you can ask banks for a good faith estimate of how much your mortgage will cost. All you have to do to get an estimate is fill out paperwork stating your financials. At this point your lender can't insist that you document the numbers in your application, though he can ask for it. If you review the estimate and decide to go forward, then you have to bring in the documentation.
- Consumer Financial Protection Bureau: What Documents Will my Lender or Mortgage Broker Request after I Have Found the Right Loan for me?
- Qualified Mortgage: Why Do Mortgage Lenders Need to See My Bank Statements?
- Department of Housing and Urban Development: 100 Questions & Answers About Buying A New Home
A Durham, NC resident, Fraser has written about law, starting a business, balancing your budget and fighting evictions, among other legal and financial topics.