Closing on a house is the last step in the home buying process. Before a closing date is set, the buyers need to be approved by a lender for a mortgage loan. Proof of income, including pay stubs or tax returns, is required when applying for a mortgage loan. However, these documents are generally not required for the actual closing.
Most people use a mortgage loan to finance the purchase of a house. Various lenders and banks fund mortgage loans to qualified applicants. Approval is based on many factors, including the applicants income and credit history. Mortgage underwriters use underwriting software to calculate the risk of lending to the applicant. Applying for a mortgage requires the potential borrowers to disclose personal information, such as Social Security numbers and employer information.
Proof of Income
Stable income is an important factor for loan approval. All borrowers must provide proof of income to the lender. For hourly and salary wage earners, the two most recent pay stubs that include year-to-date earnings are generally sufficient. However, self-employed borrowers need to provide a updated profit-and-loss statement. Tax return documents may also be required in some instances. Other forms of income such as Social Security benefits, disability, alimony or child support are considered as well. To prove this regular income, the borrower can provide a benefits letter or a copy of the divorce decree. Bank statements showing weeks or months of consecutive deposits are also required.
After the mortgage loan is approved, the lender sends the borrowers a commitment letter stating the principal loan amount, interest rate and term length which the borrowers must sign and return. A closing date will then be coordinated with the real estate agent at a place and time that is convenient for everyone. The borrowers may be asked to bring some documents with them to the closing. These often include homeowner's insurance policy information and home inspection documents.
At the closing, the borrowers sign numerous documents. These are provided by the lender and cover the various terms and agreements of the loan. Two of the most important documents are the mortgage and the deed. The mortgage, also called a deed of trust in some states, acts to secure the lender's interest in the property. Mortgages place a lien on the property, and a deed of trust acts to put the property in a trust. When the loan is paid in full, the lien is removed or the property is taken out of the trust. However, if the borrower's default on the loan the lender retains the right to foreclose on the property in accordance with the laws of the state where the property is located. The deed is the physical document where the previous owners grant the property to the new buyers. Both of these documents are filed on record with the county clerk or recorder. The original mortgage is returned to the lender and the original deed is returned to the buyers.