While applying for a refinance, you have to submit a lot of documents, including your income tax returns, statements of income, credit card statements and documents pertaining to other assets and debts you have. You might find the process of collecting these documents quite frustrating, but you won’t get refinance if you do not submit them.
If you don’t know what documents are required for refinancing, here is a quick overview:
Pay stubs
Your lender will ask you to submit proof of your income. The lender wants to verify that you have a regular source of income. Otherwise, you will not be able to make your mortgage payments regularly.
In order to prove your income, you will have to submit your current pay stubs. If you are self-employed, the lender may also ask you to submit your last two income tax returns and profit-and-loss statements.
Tax returns
Make copies of your tax returns and your most recent W-2 or 1099 statements of the last two years. They will be helpful if the lender wants further proof of your income or employment.
The W-2 form is meant for borrowers who are employed by a company. It shows the borrower’s income and the total amount deducted for taxes. The form 1099-MISC should be used by self-employed professionals or independent contractors. It shows the borrower’s income, but it doesn’t show the amount the borrower paid in taxes.
Besides verifying your salary, these documents reveal the trends in your income. In addition, lenders often use this information to determine your borrowing limits.
Credit report
Most lenders will do a credit check before approving your refinance application. Different lenders may have different credit score requirements. Don’t forget to check your FICI scores to ensure that your credit score is good.
If, after this review, you realize that your credit score isn’t good, you should take the measures necessary to improve it. You can, for example, get rid of all that credit cards you do not require. You should also pay your bills and installments on time. Remember that borrowers with a good credit score will get the best rates.
Statements of outstanding debts
When your lender checks your credit report, they can see if you have any outstanding debts. However, they will still ask you to submit documents detailing your outstanding loans. Your outstanding debts include your car loans, student loans, existing mortgage, etc. Gather account statements before applying for refinance.
If the borrower is a divorcee, he might have to file his alimony and/or child support payments as well.
Statement of assets
The lender will check whether you have enough money in your savings account to cover closing costs and mortgage payments of at least 2 months.
You should have statements of your savings account, retirement account, bonds, stocks and deposits. You can use these statements to prove that your salary isn’t the only asset you have. And if you have lots of assets, you might get better rates.
Refinancing your existing mortgage isn’t much different from applying for a mortgage. Before approving your loan application, the lender will verify your financial credentials. And for this purpose, they will ask you to submit all relevant documents. Ideally, you should have collected all the required documents before contacting your lender.
