Mortgage Refinance Checklist: Documents Needed for Refinancing

Since mortgage refinancing involves getting a new loan, homeowners need to provide a considerable amount of documentation to do it. Refinancing will feel similar to the process of taking out a mortgage, but there are some key differences.

Documents Needed To Refinance a Home

When you’re trying to refinance your home, it’s standard procedure to provide documentation that paints a picture of your finances. There’s a certain amount of risk that the lender takes on when you borrow a large sum of money, so it needs to do a deep dive into your situation before approving your application.

Note that different types of loans may require additional documentation, so be sure to double-check with your lender on exactly what’s needed. Certain Veterans Affairs refinances, for example, require a certificate of eligibility to apply. Some documents might be difficult to track down, so gathering them ahead of time could help make the refinance go more smoothly.

Pay stubs and income verification

Your lender needs to see proof of income to verify that you can pay back your new loan. You’ll typically be asked for your most recent pay stubs, covering the last month or two at least. If you own the home with a partner, then this also applies to all borrowers on the loan.

If you are self-employed or own a business and don’t receive pay stubs, then you’ll need to submit your profit and loss statements and last two tax returns.

If you have additional income outside of your primary job ⁠— such as from a business or investment property ⁠— then you’ll want to include those pay stubs and income statements to give the lender an accurate understanding of how much money you’re earning.

Tax returns, W-2s, and 1099s

Whether you’re a salaried employee or a freelancer, your W-2 or 1099 forms show whether your earnings are consistent, so the lender will know if you can make your monthly mortgage payments. These forms are sent to you from your employer or any business that you’ve worked for as a freelancer, and you can expect to receive them at the conclusion of each tax year.

You’ll typically be asked to submit your W-2s, 1099s, and tax returns from the past two years.  

Debt statements

If you’ve accumulated any debt, your lender wants to know how much you still need to repay, as this could affect your ability to pay down your new mortgage.

Be prepared to provide statements for debts such as student loans and auto loans. In addition, have your most recent mortgage statements ready.

Credit verification

Your lender needs permission to run your credit report, which shows how well you’ve handled your finances and how reliable you are when it comes to paying off debt. If you’re refinancing a conventional loan, a credit score of 620 or higher is typically required. Meanwhile, government-backed loans have varying credit requirements that depend on the lender.

To check your credit, your lender will ask for your Social Security number. If you have any red flags in your credit history — like a bankruptcy — you’ll also want to include documents that show they have been resolved.

Asset statements

If pay stubs and tax returns reflect how much money you’ve made recently, then asset statements show how much wealth you have on hand to cover closing costs and monthly mortgage payments. They prove that you’ll be able to cover closing costs and continue to pay your mortgage even if there’s an unexpected interruption in your income.

Assets can be either liquid or nonliquid. Liquid assets are cash or can be quickly converted to cash, like the money you have in your checking and savings accounts. Nonliquid assets are valuable items that take longer to convert to cash, like jewelry, furniture, art, or cars.

Be prepared to provide recent statements from your checking, savings, retirement, and investment accounts.

Proof of homeowners insurance

Homeowners insurance covers both the home and the items inside of it in the event of a fire, hurricane, or other type of disaster. Generally, your policy will pay to repair or rebuild your home — or replace your belongings — so you don’t have to do so out of pocket.

If you don’t have homeowners insurance, and disaster strikes, it could jeopardize your ability to pay your mortgage. So, your lender will ask to see a copy of your homeowners insurance policy as proof that you have enough coverage.

Other documents

Your lender may ask for additional documents if details from your financial statements and credit report have raised any questions. These documents could include:

• Gift letters that explain any recent large deposits from others.
• Explanation letters regarding employment gaps, credit changes, and so on.
• Alimony or child support payment information if you’re divorced or otherwise separated.
• Bankruptcy paperwork if applicable.
• A Social Security benefit verification letter if your income is supplemented by Social Security.

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Are You Ready To Refinance?  

Just because you can refinance your mortgage doesn’t mean it’s the best time to do so. Here are some factors you should take into account as you consider why you should refinance your home: 

• Income. If your earnings have increased substantially and you can afford higher monthly payments, then you could decide to refinance to shorten your loan term and pay less interest. However, if you’re having trouble affording your mortgage, then you may want to refinance to lower your monthly payment. 
• Closing costs. According to Freddie Mac, closing costs on a refinance come out to about $5,000 on average. Keep in mind that there could be other refinancing expenses, like higher interest paid for a longer loan term or private mortgage insurance if your equity dips below 20%.
• Time spent in the home. If you plan on staying in your home for many years, then you’ll likely have enough time to recoup the costs of refinancing through your savings on interest. However, the sooner you sell your home and move, the less you might be able to save.
• Prepayment penalty. Some lenders charge a prepayment penalty if you pay off your mortgage too soon. Before you refinance, be sure to check if your mortgage comes with this type of penalty. 
• Interest rates. If market interest rates have dipped, then refinancing can be an opportune way to save money. However, if rates are the same or have risen since you took out your original mortgage, you could lose money and end up with a higher monthly payment.

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The Bottom Line on Documents Needed for Refinancing

If you decide to refinance your mortgage, you’ll need to supply documentation that shows different sides of your finances. By preparing ahead of time, you could expedite the process and put yourself in a better position to get approved. Make sure to also ask your lender any questions you have about your refinance checklist ⁠— and then you can be on your way to getting a new loan.