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:
- Ability to pay back loan
- 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.
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