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What Is This FULL DOC Thing Everyone Is Talking About???

By
Education & Training with GLREA

What we are hearing throughout the lending and real estate industry that as this spilt milk gets cleaned up lenders and GSE’s (Aunt Fannie and Uncle Freddie) are tightening their guidelines. One of the brawniest ideas I have heard is that we need to increase the number of loans we are processing and increase the full document loans.

 In every business we pick up acronyms and expect others know what we are talking about. I occured to me not everyone knows what a “full doc” loan is?

For those of you that don’t…here is a synopsis

 

As mortgage professionals, we need to prove 2 things:

  1. Ability to pay back loan
  2. Willingness to pay back loan

 

Willingness to pay back loan is demonstrated through credit history. That is a topic for another day.

 

Ability to pay back loan is demonstrated through effective income. The income must be stable and the likelihood that it will continue must be established. Any income that can’t be verified, is not stable, or will not continue can not be included in calculating the borrowers income ratios.

 

Full doc loans require:

  • 2 years W2’s and recent paystubs for wage earners. Overtime, bonus money and part-time income are not always accepted as qualifying income. Your lender will – strike that – SHOULD   know when they can be included.

  • Commissioned Employees –

            Commission must be averaged over previous two years. SIGNED Tax Returns along with most recent pay             stubs will be required. (unreimbursed business expenses will be subtracted from gross income)

 

  • Social Security/Retirement Income –

            Require verification from the source of the income or federal tax returns. If benefits are expiring within 3             years they can be used only as compensating factors

 

  • Self- Employed

            This is generally considered stable if the borrower has been employed for 2+ years. Will require individual             tax returns, signed and dated, including all schedules for past two years. 

            Year to date Profit and Loss

            Signed 4506-T – this gives the lender the ability to compare the documents you have provided with what                 was actually provided to the government

 

This list is not conclusive – there are many other income scenerios I have not outlined such as rental income, trust income, foster care, interest and dividends, etc.

 
Some programs will also allow 12 months bank statements to prove income, using and average of deposits…of course, that was today, who knows if that will change tomorrow!

 
Another thing to keep in mind with full doc loans is ASSETS! Money in the bank or in investment accounts (401K’s, SEPs, IRAs etc) make your borrower a MUCH MORE ATTRACTIVE Date to the lenders!

 I’ve always done a fair share of my loans FHA or “full doc” so much of this is basic information. If your “favorite” lender has been doing a lot of stated or no doc loans they need to sit down with the guidelines and refresh themselves on what a “full doc” loan is. A processor is usually a great source of guideline information also!

And please, please give your borrowers a heads up that their originator is not just “being picky”. Stated and no doc loans are getting tougher without assets to back them up. Hope this helps with the confusion!

Get with your Mortgage Broker or give me a call if I can help in anyway. 

Jeff R. Geoghan
Coldwell Banker Realty - Lancaster, PA
REALTOR, Marketing Manager
Good summary Mary!  These terms can really confuse "ordinary people" who don't eat & breathe real estate.
Aug 06, 2007 05:10 PM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!
No kidding JEFF! Sometimes they even confuse originators! Thanks for the comment!
Aug 06, 2007 05:12 PM
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing
Excellent post - to make it even more confusing full doc means different things to different lenders.  Sometimes full doc is nothing more than bank statements.  It is a crazy world - this is an excellent post. 
Aug 06, 2007 05:14 PM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!
Thanks Kate! Like I said, that bank statement thing was good today - who knows what tomorrow will bring. Isn't it all nuts? Hard to keep up some days! I feel sorry for those who had approvals and now they have been pulled or rates jacked up -- ugh!
Aug 06, 2007 05:18 PM
Sharon "Toni" Brown
Exit Realty United - South Ozone Park, NY
South Ozone Park - New York City Real Estate
Thanks for the info, these times make it even more important not to waste alot of time with buyers who are not or are resisting prequalification.  We need to know what to expect.
Aug 06, 2007 05:28 PM
Dawn Workman
Veracity Real Estate Group, LLC - Camas, WA
Camas Real Estate Expert, MBA, 480-540-8100
Yuck, sounds like a big mess as well as a lot of time wasted. 
Aug 06, 2007 05:43 PM
Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE
Now...that was explained nicely. Thanks Mary. We just got two new agents in our office and the one came in to have my broker sign so she could submit her application and state exam results to the REC. In the meantime she is talking about a potential client (friend) who she is "advising" about what to do for a loan...my broker immediately cut her off and told her she needs to refer her "friend" to a lender. Geez.
Aug 06, 2007 05:45 PM
Marie Kletke
iNet Realty - Long Beach, CA
Broker - Long Beach Real Estate

Mary- Just for clarification.

Overtime and bonus income - As a rule, lenders will consider that if you have been employed with the same company for the last two years.  Sometimes, underwriters do not want to mess with this and will just calculate the all the income.

Social Security or Retirement Income usually will not need their taxes.  (That is the underwriter's prerogative.)  What they do need to produce is a copy of their benefit letter.

As far as assets, rule of thumb is two months PITI reserves.  Source of funds have to be documented.  Depending on the loan, the lender will want to see a papertrail of 3 months for the funds.  Gifts also need to be documented.

There is still alternative documentation and limited documentation.  These types of documentation have been around for years.  It has been predicted that they would make a comeback and here they are!!!

Aug 06, 2007 08:34 PM
Ed Vogt
Midwest Properties of Michigan - Grandville, MI
Grandville, MI Midwest Properties
Hi Mary - thanks for putting this in laymen's terms.  Mortgage and even Real Estate jargon is it's own language and can be quite confusing to some people.
Aug 07, 2007 05:57 AM
Gary Smith
Agent Marketing Today - Commerce Township, MI
Mary, I'm still confused. Good thing I added you to my profile this afternoon
Aug 07, 2007 11:54 AM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!
SHARON - thanks for the comments. You are correct in saying agents need to know what to expect. There is nothing more frustrating TO EVERYONE than having a purchase agreement and no where to go with it. It is part of the "fact" finding phase and helps you know what to look for. Also in the prequal is knowing what TYPE of home to look for. For instance, someone prequaled for a US Rural Development Loan should NOT be looking at doublewides :)
Aug 07, 2007 03:06 PM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!
SHARON - thanks for the comments. You are correct in saying agents need to know what to expect. There is nothing more frustrating TO EVERYONE than having a purchase agreement and no where to go with it. It is part of the "fact" finding phase and helps you know what to look for. Also in the prequal is knowing what TYPE of home to look for. For instance, someone prequaled for a US Rural Development Loan should NOT be looking at doublewides :)
Aug 07, 2007 03:06 PM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!
DAWN - I am in disagreement that it is a waste of time. Most brokers know that a full doc rate it generally the best terms/rates for a borrower. Sometimes it PAYS to do the paperwork! Thanks for the input! What part do YOU think sounds like a waste of time?
Aug 07, 2007 03:07 PM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!
SAlly - thanks for the comment! How wise to send the buyer to a broker right off the back! Especially these days it is so important. I would never advise someone on real estate -- I would refer them to an agent as I have no idea all the laws, idiosyncracies and liabilities. Those are things I just don't think of. I would expect any real estate agent to do the same regardless of how much they think they know. Awesome contribution as always! Thanks!
Aug 07, 2007 03:10 PM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!

Marie - I appreciate your contributing many of the finer points. It is difficult to know how much information to put out there before it confuses people. Many times smaller bits of information taken in over time stick in the noggin better! It means a lot that you contributed!

I am of the school that more is always better. I would rather have too many documents up front than not enough! Then if the underwriter asks for something else (seems they always do!) I have something else to produce without much extra effort! Keep up the good work!

Aug 07, 2007 03:13 PM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!
Hi Ed - you are so right about the jargon! Sometimes we take it for granted that others know what we're talking about. I also believe there are many people who don't, or won't ask questions and just interpret what they were told -- that leads to so much confusion! Thanks for your contribution!
Aug 07, 2007 03:15 PM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!
Gary - Sorry :) I was hoping to clear up some confusion! Let me know how I can help! (ps. Northern Michigan was beautiful today after the rain cleared!)
Aug 07, 2007 03:16 PM
Marie Kletke
iNet Realty - Long Beach, CA
Broker - Long Beach Real Estate
Good point, Mary!  i actually do the same thing with our borrowers.  However, this market may get crazier before it gets better.  Many underwriters now do not understand traditional or common sense underwriting simply because they have never been trained at it.  I am already seeing a lot of crazy conditions because of this.  In a few of them, I have had to through the book at them!  Lucky for me, they did not have any readily available books that outlined traditional underwriting. It sound funny, but it's quite worrisome!
Aug 13, 2007 06:22 PM
Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!
Marie - :) At time doesn't it feel like they sit around during lunch hour and dream up crazy conditions? It sounds like you know your guidelines well and that will help with your success!!  I think you are right - this will likely get crazier but I think the results will be great! Only those who truly want to be in this industry will stick it out! Thanks again for your input!
Aug 14, 2007 12:43 AM