Buying a new house is an incredibly exciting time in your life. It can also be an incredibly stressful one. I am a firm believer in reducing stress by eliminating all the possible unknowns. I believe that buying a house is stressful (aside from a large amount of money you are spending) because few people really know what to expect. It just seems like one more document to fill out, another set of statements to fax, and one more phone call to make. If you have an awareness of what is needed and a schedule when the paperwork and phone calls are needed, then you can be better prepared and relax a little bit. You can start by reading this article about residential mortgage documents so you can have some expectation of what is coming your way.
What Is A Mortgage?
Before I jump right into an explanation of mortgage documents, I want to first explain a mortgage. When you think about buying a house mortgage, I am sure you know that typically comes with a large loan and a relatively high monthly payment. This is will most likely be the biggest payment you make each month. There are not many people that can afford to pay for a house with the money they have saved, so they usually need to take out a loan, or mortgage, that allows them to buy a house and make payments to the lender until the loan is paid back. As with all loans, the lender adds interest to the money you borrow as a fee for allowing you to borrow the money in the first place. That is how the bank makes money, by charging you interest and fees.
When you borrow money for a mortgage, you are using the house that you are buying as collateral. That means you are stating that you promise you will repay the money and if you do not, the lender can take your house as payment. Mortgages can either be a fixed rate or an adjustable-rate mortgage. A fixed-rate mortgage means that the interest rate is fixed and remains the same for the life of your mortgage. An adjustable-rate mortgage means that the rate will change over the life of the mortgage. There are different adjustable-rate mortgages, so the rate changes based on the criteria around your mortgage.
Mortgage Application Documents
There is a lot to know about mortgages before you consider buying a house. To determine whether you’ll qualify for a mortgage loan, you need to know what mortgage lenders look at. Even though we live in a paperless world, one of the areas that have not gone paperless is mortgages. Not only is there a lot of paperwork for you to fill out, but there are a lot of mortgage documents and statements that you need to provide to the lender. What is good to know is that the documents are relatively easy to fill out, there are just a lot of them. When you get any document that you need to fill out, make sure you read the entire document and fill out the form completely. Do not skip over any areas and make sure the information is as correct as possible.
Listed below are many of the documents you must fill out or provide when applying for a mortgage.
One of the most important mortgage documents you will fill out is the actual loan application. It is called a Uniform Residential Loan Application. It requires information from every person whose name is going on the loan. That may be you, you and your spouse, or you and your partner. No matter who is it, you all must fill out the loan application. This document requires information about you, the house you want to purchase, previous employer information, financial information, and some other questions. It is important that you fill out the information completely and correctly. One of the next steps is the lender asking you for proof of all of the information on this document. You can think of this document as the first page of all your mortgage paperwork. The closing documents are the last pages and all the supporting information goes in the middle.
You will come to realize that all of the mortgage documents are important. When the lender asks you to fill out a document, or submit proof of something, they give you a due date. It is important that you meet those requirements because failure to do so can result in being denied a mortgage. On your loan application, you list your income and then the lender wants to see proof of it. They want to know that you earn enough money to pay the mortgage payment. They want to know how long you have been with your current employer as well as how much you earn. When you have a long term employment history with the same employer, lenders see that to mean that you are reliable.
The documents a lender may request are:
A lender is most likely going to request W2s for the past two years for each person applying for the mortgage. If you do not have access to these records, you may have to contact the IRS to get copies. If you have breaks in your employment, you may need to write a written explanation as to why
These are the best way for a lender to see what amount of money is coming home with each payment. Most likely, you will need to provide 30 days of pay stubs. For most people that is two pay stubs, but for those who are paid weekly, they will need to provide four. If you receive any other payments that you are reporting on your application, you must provide proof of that, too
Lenders want to see how much you claimed and deducted on your tax returns. In addition to providing tax returns, you may also fill out a form that allows the lender to request the transcript directly from IRS
If you are self-employed, then you may have to provide some additional documentation, such as a profit and loss statement, 1099s, and three years of tax returns. If you receive any type of alimony or child support, you may need to provide the court order along with bank statements or checks to prove this
Assets and Debts
Some additional mortgage documents that you should be aware you will need to provide are ones that show your assets and debts. Lenders are especially interested in your debt and your debt to income ratio. They want to know how much debt you have in relation to the amount of income you have coming in each month. It may be helpful to you, especially if you have a high amount of debt, if you create an account to save money to pay for your house so that you can show you have money prepared for that. This fund can also help you when it comes to early costs with purchasing a home, such as furniture, or any repairs or upgrades that you may have to make. Lenders are interested that you are making sound financial decisions in general.
Buying a home is going to require that you have some money in the bank. There are many expenses you will need to save up for beyond just the down payment. #mortagageloans #movingloans #rentloan ?https://t.co/TbFBjFoD6l pic.twitter.com/BR0eNY04Qy
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Their goal is to make sure that you will be able to continue to pay your mortgage for the entire length of your mortgage. On the mortgage application, you list out all of your debts and the lender may want to see proof of those debts as well as your bank statements to show your assets.
Lenders may request two to three statements of all your bank accounts. They use these documents to verify your income, balances in your accounts, and where you are getting the money for your down payment. If you have large deposits in your account, the lender is going to want an explanation of the source. Some, but not all lenders, allow you to use a gift for a down payment. If your lender allows a gift, you may have to get the gifter to sign a document stating that it was a gift and repayment is not expected
Lenders want to see two to three months of statements from any investment accounts that you list on the mortgage application. This can include 401k, IRAs, CDs, and stocks.
The mortgage documents that I mentioned above are the documents that are requested when you are applying for a mortgage and typically before you are actually approved for the loan. If you apply for one loan and it is not approved, you may decide to apply for a different one. If that is the case, you should expect to have to provide the same documentation again. There may be some additional documents that you have to provide, depending on your situation.
If you have been renting a home for at least a year, you may need to provide proof of that rent. If you have recently divorced, you may need to provide the divorce decree and child support. This information may also be important if the divorce has impacted your credit. If you have had a bankruptcy and foreclosure, then you may have to provide some additional documentation. You may need to provide proof that the debts have been paid. You also may need to wait at least seven years to purchase a home.
Once you have finally made it to closing, you may not be out of the woods, yet, as far as mortgage documents are concerned. You still have some additional forms to sign. You may not have to fill them out, but you have to review them and sign them. And you should have the opportunity to review the documents three days prior to your scheduled closing date. When you review these documents, you want to verify that your name is spelled correctly. In addition, verify that the loan amount, interest rate, loan type, and purpose line up with what you are expecting. You do not want any surprises when it comes to those documents.
In addition, read all of the fine print to determine if there is a penalty if you pay off your mortgage early. You also want to make sure that there is not a balloon payment for your mortgage that you were not previously aware of before signing the paperwork. You also want to make sure that the estimated monthly payment matches the estimate that you received for your loan. The amount of money that you must bring to closing is also listed on these documents, so you want to make sure that you are aware of that amount and that you have the cash to bring to closing. You do not want to get into the office to sign the paperwork and be surprised.
This is one of the mortgage documents that is your agreement to repay the money you borrow. It should list the amount you are borrowing, late payment penalties, and your interest rate. If you have an adjustable interest rate, there should be details about how and when your rate can change.
Deed of Trust
In the list of mortgage documents, this is the one that gives you your rights as a borrower. It also states that if you do not pay your mortgage, the lender can foreclose and take your house. This document contains a section that states you will not use hazardous material in your home. It also states that if you sell the home listed on the documents, then you must repay the loan in full.
Escrow and Right of Recission
These mortgage documents tell you some important information. Escrow is an account that holds money for you and then pays your taxes and homeowners insurance. This account takes money from each mortgage payment and it sits there until those bills need to be paid. This document outlines how much money is being put in your escrow account and then outlining how it is being used. You want to make sure you understand the money that is going in and out of this account.
The right of recission document basically states that you have the right to cancel your loan within three business days. This document is only included when you are refinancing your primary residence. If this is not a refinance, you will not sign this document.
Difference Between a Bank and Mortgage Company
When you are looking for a mortgage lender, you have two options available to you, a traditional bank or a mortgage company. A bank is probably the lender type with which you are most familiar. They usually have one person dedicated to mortgages. This person completely understands all of the mortgage products the bank offers. They help you with your financial situation by taking an in depth look at your financial situation and looking for ways you can improve it. They may not be able to offer you a loan if your credit score is too low. Typically, the bank pays its employees a salary so they are not charging you extra fees for their services.
A mortgage company employs a large number of employees that specialize in lending and financial products. They have more options to provide you. If you have a low credit score, a mortgage company may be able to get you approved for loans whereas a traditional bank may not be able to. A mortgage company will assess your credit score and income and look for mortgage options that are the best fit for you. Mortgage companies work off commission and may pass that cost along to you in extra fees. The other side of that is they may work harder for you to get your mortgage approved. No matter which option you choose, the mortgage documents that you need to fill out will remain the same.
I have run through a list of mortgage documents that you are going to have to fill out and sign when you want a mortgage. There are always special circumstances that may require you to fill out some additional documents that are not listed here. These are the major ones that you should expect to sign. If you do not sign them, you may want to ask your lender why you did not get that document. You do not want to get to the final days right before closing and find out you have to obtain some more documents and you only have hours to do so.
Julia Peoples is a long-time business manager focused on providing decision making assistance to the public. She works with people at key points of their lives who are making important retirement and financial decisions. She has had many articles published that educate the public on sound financial decision making.
Julia writes for those who are working towards financial freedom or a better understanding of how finances work. She has shared her financial insights with individuals on a one on one basis for years.