Mortgage Loan Application Process & Paperwork

By Eric Tyson, Robert S. Griswold

The mortgage application process is complicated. For a mortgage lender to make a proper assessment of your current financial situation and process your mortgage application, the lender needs details. Lots of them! Thus, mortgage lenders or brokers ask you to sign a form authorizing and permitting them to make inquiries of your employer, the financial institutions that you do business with, the Internal Revenue Service, and so on.

Mortgage lenders provide you with an incredibly lengthy list of documents that they require with mortgage applications. Here is a mortgage loan documents checklist to help you gather what you need:

  • Pay stubs, typically for the most recent 30 consecutive days
  • Two most recent years’ W-2 forms
  • Two most recent years’ federal income tax returns
  • Signed IRS Form 4506-T Request for Transcript of Tax Return
  • Year-to-date profit-and-loss statement and current balance sheet if you’re self-employed
  • Copies of past two months’ bank, money market, and investment account statements
  • Recent statements for all outstanding mortgages
  • Copy of current declarations pages for homeowners insurance policies in force
  • Home purchase contract (if you’re financing to buy a home)
  • Rental agreements for all rental properties
  • Divorce decrees
  • Federal corporate tax returns for the past two years
  • Partnership federal tax returns for the past two years
  • Partnership K-1s for the last two years
  • Condo or homeowners association documentation — such as CC&Rs, (covenants, conditions, and restrictions) bylaws, articles of incorporation, budget, reserve study, current regular assessment amount owed, if any, special assessments due now or approved for the future, if any, contact name, address, and phone number
  • Title report, abstract, and survey
  • Property inspection report and pest control inspection report (if you’re buying a home)
  • Gift letter — the source of any funds being used toward your down payment must sign indicating that these funds are a “gift” and are not required to be repaid
  • Receipts for deposits (if you’re buying a home)

Don’t despair at the length of the list. This list covers all possible situations, so some of the items won’t apply to you.

Still, you may rightfully ask, “Why do lenders require so much information?”

Most of the items on this laundry list are required to prove and substantiate your current financial status to the mortgage lender and, subsequently, to other organizations that may buy your loan in the future in the secondary mortgage market. Pay stubs, tax returns, and bank- and investment-account statements help to document your income and assets. Lenders assess the risk of lending you money and determine how much they can lend you based on these items.

If you’re wondering why lenders can’t take your word about the personal and confidential financial facts and figures, remember that some people don’t tell the truth. Lenders have no way of knowing who is honest and who isn’t. The unfortunate reality is that lenders have to assume that all their loan applicants may lie given the opportunity.

Even though lenders require all this myriad documentation, some buyers still falsify information. And some mortgage brokers, in their quest to close more loans and earn more commissions, even coach buyers to lie to qualify for a loan.

One example of the way people cheat: Some self-employed people create bogus tax returns with inflated incomes. Although a few people have gotten away with such deception, this wayward path isn’t recommended. Also, lenders have become smarter, too, and now typically rely only on tax returns that they receive directly from the IRS or the state taxing authority.

If you can’t qualify for a mortgage without resorting to trickery, getting turned down is for your own good. Lenders have criteria to ensure that you’ll be able to repay the money you borrow and that you don’t get in over your head.

Falsifying loan documents is committing perjury — and fraud is not in your best interests, even if you won’t get impeached for it. Mortgage lenders can catch you in your lies. How? Well, some mortgage lenders have you sign IRS Form 4506-T (Request for Transcript of Tax Return) — typically at the time you submit your loan application — that allows them to request directly from the IRS copies of the actual tax returns that you filed with the IRS.

Besides the obvious legal objections, lying on your mortgage application can lead to your having more mortgage debt than you can really afford. If you’re short on a down payment, for example, alternatives are available. If the down payment isn’t a problem but you lack the income to qualify for the loan, check out loans known as “No Doc” or NIVs (no income verification) or stated income loans that don’t require documentation of income.