3 private documents your lender needs to see (and why)

It’s normal (and smart) to think twice before you share personal information. After all, your finances are, well, personal. When it comes to getting a loan, though, revealing certain details is a necessary part of the process. Lenders need to verify who you are and how much money you have coming in to make sure you can handle the loan. 

Private documents: Your financial resume for funding

You’ve got goals: buy a home, buy a car, scale up your business, consolidate debts. Whether it’s these or other milestones that are highest on your dream list, you have to jump through a couple of hoops (hopefully easy ones) to land a loan. 

Expect lenders to review your credit score and calculate your debt-to-income (DTI) ratio (how much of your money goes to debt payments). They’ll also verify your income by looking at your private financial documents such as these:

W-2 forms and pay stubs 

A major factor in getting loan approval is your ability to pay it back. Lenders want to know that you have reliable, steady income. If you have a day job, lenders usually ask for recent W-2 forms and pay stubs. 

If you have more than one day job, you need W-2 forms and pay stubs for each one. If you're an independent contractor or do side gigs and get a 1099-NEC or 1099-K tax form, gather those, too. 

W-2 forms show your wages from last year. Pay stubs show your recent earnings. Together, these forms show how much you get paid, and how often.

Bank statements

Your bank statements can help paint a bigger picture of your financial situation.

For instance, if you receive your income in cash, bank statements can back up what you tell a lender about the money you earn in a given month. Your bank statements could also help you prove that you receive alimony, child support, or rental income.   

Your recent bank statements help the lender glean insights into the amount and frequency of your deposits. Plus, you could show that you have money in the bank if cash reserves are a requirement for your loan.  

Tax returns

To get the green light for, say, a home equity loan, you may need to provide one or more recent tax returns, complete with all the various tax forms. This is especially true if you work for yourself, or if the lion's share of your income is from commissions, bonuses, or investments. 

Your tax returns show where your income comes from. For instance, alimony, capital gains from stock sales, investment returns, child support, pension, rental income, or disability income. And if your base earnings are bolstered by sales, commissions, or investments, your tax returns provide a more detailed breakdown of how much you earn from which sources. 

Like bank statements, tax returns give a more complete picture of your financial situation. 

Preparation is the key to a smooth loan application

The best way to have a smooth loan application process is to be prepared before you apply. One step you could take to get ready is to get pre-approved for the loan you want. This is a way to find out what you might qualify for without providing all the paperwork or risking harm to your credit score. Just be sure to ask the lender if they use a soft credit check (the kind that doesn’t affect your score). Then, you can find out which documentation your lender might need for income verification and gather it before you submit a formal application.