What you need to apply for a mortgage

By Dan Rafter of HSH.com

When it comes time to apply for a mortgage in 2014, you might be surprised at how much documentation you’ll need.

J.D. Crowe, president of Southeast Mortgage in Lawrenceville, Ga., says most of the documentation should be familiar to you if you have applied for a mortgage loan in the last five years. If you’re new to the mortgage market this year, he says, this is all new.

The new qualified-mortgage rules that took effect on Jan. 10 make this paperwork even more important. To meet the rules, lenders will be even more diligent in collecting the paperwork that proves that you can afford your monthly mortgage payments. David Reiss, professor of law at Brooklyn Law School in Brooklyn, N.Y., says that while the documentation requirements under the rules might come as a shock to those who haven’t applied for a mortgage since 2008, they are common-sense requirements, for the most part.

“These are really common-sense rules,” Reiss says. “The new rules say that mortgage lenders are no longer allowed to throw out the common-sense standards of lending money during boom times, when they might be tempted to overlook long-term financial goals for quick profits. If the rules help that happen, they’ll be a good thing.”

Here are the documents you’ll need to supply today to satisfy mortgage lenders.

Full tax returns from the past two years

You’ll have to provide all the pages from both sets of returns. Jordy Castillo, national sales director at GFI Mortgage Bankers in New York City, says that your lender requires two years of returns to verify that your household income was consistent. Lenders get nervous when your household income fluctuates by too much from year to year.

You can request a copy of your past returns by filling out Form 4506, “Request for Copy or Transcript of Tax Form,” from the IRS.

Two most recent pay stubs from your employer

Make sure these are current, or your lender won’t accept them. Your lender wants to approve you based on your current salary. If you haven’t saved your pay stubs on your own, request them from your company’s human-resources department.

Financial statements from the past two months

You can request these statements from your bank or print them yourself if you have access to online banking. Some lenders might also request copies of all your retirement accounts, investment accounts or both. The thinking is that you can access these funds in a financial emergency — even if doing so generates a penalty — if you need extra money to repay your mortgage loan, Castillo says.

Photo ID

Everyone whose name will be on the loan needs to provide a photo ID.

Signed sale contract

You will only have to provide this when you finally make an accepted offer on a residence, not if you’re applying for a preapproval.

Proof of homeowners insurance

Lenders won’t give you a mortgage loan if you don’t first take out an insurance policy on your new home.

Written verification of your position and salary

Make sure this is dated and written on company letterhead. Your lender might also call your employer during the underwriting process to verify that you haven’t lost your job since the time you applied for your mortgage, Castillo says.

Canceled rent or utility checks

Lenders might request canceled rent or utility checks from first-time buyers to prove you have a history of on-time payments, according to the Consumer Financial Protection Bureau.

Gift letters

If someone is giving you a financial contribution to help cover closing costs or a down payment, you’ll need to provide a “gift letter” from the donor stating the amount, that the funds were a gift and do not need to be paid back.

1099 forms

If you are self-employed you will have to provide copies of your 1099 forms to your lender. These forms show how much money you were paid as an independent contractor from various clients during a year.

These forms, combined with your past two years of tax returns, will help prove that your self-employed income is steady. Customers who pay you $600 or more in a given year are required to send you a 1099 form.