7 DOCUMENTS YOU NEED WHEN APPLYING FOR A HOME LOAN
The concept of lending money is not something new in our world. The origin of lending money was first witnessed back in 2000 BCE in Mesopotamia, also known as first “Payday Loans”. However, with the passage of time and evolution taking place, the concept of lending money has also transformed. Now, the loan itself has been categorized in different forms for example home loan, business loan, study loan etc however, the initial concept for all is same.
A loan is basically when an individual lend/receive money from the bank or company or from another individual with the promise to repay the same with the interest amount. Nonetheless, the borrower may at times require to submit/surrender any of his assets to the creditor against the loan. This is usually done to secure the creditor interest in the event the loan is not repaid. Needless to say, there are different types of security which include but limited to mortgage, hypothecation, pledge and guarantees etc.
Having said that, the procedures for getting loan also varies depending upon the nature of the loan. As discussed herein above, there are different type of loans however, in this article we shall be focusing on the home loan and more importantly the documents required to get the said loan.
What is Home Loan?
Home loan in simple words is a loan taken from the financing institution either it could be a bank or company or an individual, to buy house. This is a financing option for an individual whereby funds in the form money are provided for the purpose of buying, building or constructing a home. This can be also be known as mortgage as the lender usually retains title of the home for which the loan is being granted.
It is also important to note that getting the home loan is not that easy as it seems as there is a long procedure which needs to be followed. This process requires submission of certain documents as the lender/creditor always request paperwork to access the mortgage application. There are mainly seven (7) documents which are:
- Tax returns
- Pay stubs or other proof of income
- Bank statements or other assets
- Credit history
- Gift letters (if any)
- Photo ID
- Renting history
Every financial institution always requires tax returns of an individual or an entity to access the financial situation of the borrower. It is imperative to note that the due diligence is vital for every lender/creditor before allowing the loan to the any borrower. Therefore, they always require tax return of one or preferably of two years to ensure that the annual income is consistent with the reported earnings.
PAY STUBS OR OTHER PROOF OF INCOME
Same as the tax returns, it is also essential to provide the pay stubs to the lenders/creditors. This is also essential for the lender/creditors to determine and examine the current situation or position of borrower’s earnings. The significance of the tax returns and pay stubs or other proof income is that it helps the lender/creditors to get the clear picture of borrower’s financial health.
This is usually required to judge and contemplate the smooth repayment of the loan as the lenders/creditors always required assurance of discharge of obligation of repayment by the borrower in order to minimize the situation of default.
BANK STATEMENTS & OTHER ASSETS
It is imperative for every creditor to ensure that the borrower is able to repay the loan amount without committing any default thereof. Therefore, they always assess the risk before getting into the loan transaction with anyone.
For that, it is necessary for them to look into the bank statements and other assets of the borrower however, other assets may include investments as well as insurances. It is pertinent to note that the rationale behind getting these documents is to make sure that borrower have reserves mortgage payments in case of any uncertainty.
Credit history is a record of borrower’s debt and it always defines and outlines how diligent and responsible he/she is towards repayment of debts. It helps the lender/creditors to judge the behaviour and seriousness of the borrower towards the repayment of loan (if granted).
GIFT LETTERS (IF ANY)
In case if the borrower gets any financial help from the family or friends or from any other mean thereof, then is important for him to get the written confirmation of the amount received as gift and not as loan. The said written confirmation shall be provided to the lender/creditor.
This is standard document that is always required for entering into any transaction. Therefore, same as any transaction it is also obvious to provide photo ID to the lender/creditor for the purpose of identification.
The lender/creditors also deemed it pivotal to check the rent history of the borrower specially from those who do not own a home. This is usually done to see whether the borrower was paying rent on time or not.
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Lastly, it is to be noted that the said list is not exhaustive as it may varies depending upon the policies of each financial institution. However, what is evident is that main thing for the lender/creditor before granting any home loan is to perform due diligence as much as they can. The reason behind is explicit as it is pertinent to adjudge financial health of the borrower to determine the risk of default. Because at the end every lender and creditor want full repayment of the loan with the interest without any default.