Refinancing a mortgage works much like getting an application for a brand new loan when it comes to the documents you need to provide as a borrower. But why all the paperwork? Essentially because your lender needs to see certain documents in order to “process” your loan application — and to determine if you qualify for refinancing by assessing your individual financial situation. Along the way, an underwriter will assess the risk.
If all of this sounds confusing, don’t worry. A mortgage professional is just a phone call away at Mr. Cooper! Here’s a quick look at some of the documents lenders might require before you qualify for a loan.
Lenders generally look for two main factors when assessing your loan application: your creditworthiness — typically influenced in part by your credit score, which reflects whether you make payments on time — and your ability to pay the loan back. The latter is gauged by proof of income, and for most, this proof comes in the form of pay stubs. Lenders typically ask for pay stubs from the last two or three months, but the exact range will depend on the lender. Be sure to ask how far back you need to go with proof of income.
If you are self-employed, then you might not be required to show pay stubs — but you will likely need to provide profit-and-loss statements and federal tax returns as proof of income.
W-2s or 1099s
To supplement the income information from your pay stubs, your lender might want to see tax documents, too. For employees, these would be W-2 forms. For an independent contractor, this would likely be a 1099 form. Lenders usually ask for two years’ worth of information, but this is another thing that could vary by lender (so plan to ask).
It’s important to note that since W-2s are used for employees, they reflect taxes taken from their paychecks. An independent contractor, on the other hand, doesn’t have taxes taken out by an employer so 1099 forms won’t show tax information.
Whether you get W-2s or 1099s each year, you’ll also need to provide tax returns. These show trends in your earnings, what income you may be receiving from investments, and other financial information. Your lender can use this data to build a more complete picture of your financial situation.
Your income information could impact the refinancing options available to you. For instance, it is more beneficial if your records show a steady or upward movement in your income. A decline in income could negatively impact a loan application.
Statement of Assets
Lenders also typically want to see what other assets you have in order to determine whether you have enough collateral on hand to cover a couple of months worth of house payments, as well as the closing costs associated with the loan. Your assets may include:
- Bank accounts
- 401k or other retirement accounts
- Mutual funds
- Life insurance policies
Having sufficient assets at your disposal could make loan approval more likely, since it indicates to the lender that a borrower has enough resources to cover a new mortgage.
Statement of Debts
A key part of determining your debt to income ratio (DTI) is your current level of debt. As such, your mortgage lender will pull your credit to see a statement of outstanding debts
Your lender will evaluate your debts, your income, and your assets in order to determine if you qualify for a refinance. In some cases, it might be necessary to pay down a portion of debt before a borrower can be approved.
In addition to all of your financial information, your lender will probably want to make sure that you have insurance coverage. Proof of valid homeowner’s insurance is required when you apply for a refinance, since you will still be making mortgage payments to your lender on your home after completing the process.
Depending on your situation, you might need to provide additional documents beyond those on this list to your lender when applying for mortgage refinancing.