Large bank deposits

This one is the most important – Mortgage lenders require at least 2 months of bank statements. Any large cash deposits will cause red flags in underwriting.  Be prepared with documentation and a letter of explanation as to the reason for the large cash deposits. 

Typically: If a loan officer and/or the underwriter sees a large deposit over $1,000, you must provide the source of funds. In some situations, a deposit as little as $200 can trigger the underwriter to request documentation.

Employment changes

Most lenders will check your income and employment more than once throughout the transaction. If you anticipate a job change, lose your job, or start your own business – which changes your tax status (for instance, moving from a W-2 to a 1099 for self-employment) – inform your lender immediately. Not doing so can impact your eligibility to qualify for a loan and pose a problem before closing.

Income of all types

How much you earn is a key piece of the lending puzzle, and you don’t want to lie about it and wind up with a loan you can’t afford. If you haven’t been at the same job for at least two years, you’ll need to provide a documentable job history for each position you’ve held in that period. And – Don’t try to hide any source of income, or you could jeopardize your entire loan application and goodwill with your lender.

Divorce, child support, alimony, or bankruptcies

Unbelievably, these personal details are important to your lender. You will need to disclose income from child support or alimony, or that you pay child support or alimony to a former spouse. Also, if you had a bankruptcy filing recently, you typically must wait two years after the bankruptcy is discharged before a lender will consider you for a new mortgage loan.

Past addresses for previously filed tax returns

A lender qualifies you based on your income, and your IRS tax returns for the past 2 years give credence to verifying your income. Your lender will request a copy of your tax transcripts and compare that data against the income documentation you’ve provided. If the addresses don’t match up, it could create a verification issue for your mortgage loan application, therefore, make sure you have a list of your past addresses handy in case your lender requests this information, so your loan doesn’t get derailed.

New loans or major purchases

You’ve probably heard that you shouldn’t buy a new car or take out a big loan right before or while you’re applying for a mortgage – and the reason is simple!  It increases your debt-to-income ratio (DTI). This is especially true for lower-income or Federal Housing Administration loan borrowers, who typically have a tight DTI to begin with. The higher your DTI, the higher your interest rate and the riskier you are to a potential lender, which can impact what type of mortgage you qualify for.

Plan for your financial assets

If you must come up with a hefty sum of money for your down payment and closing costs, and your lender will expect proof that you have sufficient funds to follow through with your purchase. Many borrowers don’t have a plan as to where some of that money will come from, and they really need to have that sorted out ahead of time. If you’re not sure how to structure things, ask your lender for guidance and to give specific examples of assets you should account for, such as checking and savings accounts, retirement and pension accounts, brokerage accounts, college savings funds, and financial gifts from relatives.