When you’re applying for a mortgage, one of the most critical parts of the process is providing the necessary documentation. The type of documents you need can vary depending on how you’re employed. Whether you’re a W-2 employee or a 1099 independent contractor, this guide breaks down the requirements so you can prepare with confidence.
Documents Required for W-2 Employees
If you’re a W-2 employee, your lender will want to see proof of steady income and financial stability. Here’s what you’ll typically need:
Income Verification
- W-2 Forms: Usually for the past 2 years to demonstrate consistent income.
- Pay Stubs: The most recent 30-60 days’ worth to confirm current earnings.
- Tax Returns: Sometimes required for the past 1-2 years, especially if there are bonuses, commissions, or variable income.
- Employment Verification: A letter from your employer confirming your job title, length of employment, and salary (if requested by the lender).
Assets and Financial Accounts
- Bank Statements: For the past 2-3 months to verify sufficient funds for the down payment, closing costs, and reserves.
- Retirement or Investment Account Statements: If applicable, to verify additional assets or reserves.
Credit and Debt Information
- Credit Report: The lender will pull this directly to assess your credit history and scores.
- Debt Information: Documentation on any outstanding debts, including credit cards, auto loans, or student loans.
Identification
- Government-Issued Photo ID: A valid driver’s license, passport, or state-issued ID.
- Social Security Number: For the credit check and verification.
Other Documents
- Proof of Additional Income (if applicable): Documentation for income from bonuses, commissions, rental properties, alimony, or child support.
- Gift Letter: If the down payment is being gifted by a relative, a letter stating that the funds are a gift, not a loan, is required.
Documents Required for 1099 Employees
For independent contractors or self-employed individuals, lenders often require more extensive documentation to verify income and business stability.
Income Verification
- 1099 Forms: For the past 2 years to demonstrate consistent income.
- Tax Returns: Complete personal and business tax returns for the past 2 years, including all schedules (e.g., Schedule C, E, or F).
- Profit and Loss Statement: A year-to-date statement, either prepared by you or an accountant, to show current income trends.
- Bank Statements: Business and personal statements for the past 2-3 months to verify deposits and business income.
Assets and Financial Accounts
- Bank Statements: For the past 2-3 months to verify funds for the down payment, closing costs, and reserves.
- Retirement or Investment Account Statements: If applicable, to verify additional assets or reserves.
Credit and Debt Information
- Credit Report: The lender will pull this directly to assess your credit history and scores.
- Debt Information: Documentation on any outstanding debts, including credit cards, auto loans, or student loans.
Business Verification
- Business License or Certification: To verify the legitimacy of your business, if applicable.
- CPA or Accountant Letter: A letter verifying your self-employment status and business operations (sometimes required).
Identification
- Government-Issued Photo ID: A valid driver’s license, passport, or state-issued ID.
- Social Security Number: For the credit check and verification.
Other Documents
- Proof of Additional Income (if applicable): Documentation for income from bonuses, commissions, rental properties, alimony, or child support.
- Gift Letter: If the down payment is being gifted by a relative, a letter stating that the funds are a gift, not a loan, is required.
Key Differences Between W-2 and 1099 Mortgage Documentation
- Income Stability: W-2 employees provide pay stubs and W-2 forms, while 1099 employees need tax returns, 1099 forms, and sometimes profit and loss statements.
- Business Verification: 1099 employees may need to verify the legitimacy of their business through a license or accountant letter.
- Tax Deductions: High deductions on tax returns can reduce qualifying income for 1099 employees, which is less of a concern for W-2 employees.
- Income Variability: Lenders scrutinize income variability more closely for 1099 employees than for W-2 employees.
Tips to Prepare
- Start gathering documents early to avoid delays.
- Ensure your tax returns accurately reflect your income.
- Be prepared to explain any large deposits or gaps in employment.
- Consult with your lender if you’re unsure about specific requirements.
Conclusion
Whether you’re a W-2 employee or a 1099 independent contractor, having the right documents ready can streamline your mortgage approval process. Understanding the requirements and planning ahead will give you the confidence to navigate this critical step in securing your dream home.
Have questions or need help preparing your documents? Contact us at Kory White Real Estate Group for expert guidance!