When you submit a mortgage application your lender gives you a preliminary approval or denial based on information that you provided verbally. However, in order to actually take out a loan, your lender must verify that you actually have sufficient income to qualify for the loan. You must provide your lender with documentary evidence to support your stated income level.
Having given you a preliminary approval for a loan, your lender must give you a mortgage document checklist that details the exact documents that your lender needs to see before confirming your loan approval. If you are a salaried employee you must give your lender your two most recent pay slips as well as your employer's contact information. You also have to give the lender your two most recent W2s. If you were a full-time student within the last two years and have no W2s, you normally have to give lender copies of school transcripts or your diploma.
Self-employed people do not have pay slips and instead must give the lender copies of the last two years of tax returns. You must give your lender both your personal and business returns even if you are not the sole owner of the business. People who are not self-employed do not normally have to provide lenders with tax returns but do have to sign a 4506T form. This form gives the lender the authority to obtain copies of your previous years taxes from the Internal Revenue Service.
If you are divorced and receive alimony you must give the lender a copy of the divorce decree and evidence of 12 months of alimony payments. Social Security recipients must provide the lender with a copy of their annual Social Security award letter. If you receive a pension payment you must obtain an award letter from the state or your former employer. Most lenders verify income related to investments, including rental income, by reviewing your tax returns.
Having reviewed your income documentation, your lender contacts your employer to verify that you are still employed. If you receive retirement income, the lender may contact the entity that provides your retirement income to ensure that payments are ongoing. The lender finally approves your loan after speaking with your employer or pension provider. However, just a few days prior to the loan closing, your lender can contact your employer a second time to ensure you are still employed, before closing on the loan. Losing a job or changing jobs could jeopardize your loan closing. If your lender offers "stated income" loans, you do not need to provide any income documents but your lender does verify your employment.
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