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Even with Great Credit, There are No Low or No Doc. Loans Anymore!

Mortgage and Lending with Providence Home Mortgage/ICCF

It's been pretty common knowledge for the past 18 months that the stated income, no document, no income, and low document loans are gone. However, I think that a lot of great customers with really high credit scores- say 740 and up, don't know that in the past they probably got through the mortgage process easier because of something called alternate doc. I will list below the difference between a truly full document loan and alternate doc. (the norm of two years ago):

Full Document :

  • 2 years W2s
  • 2 years tax returns if you have any self employment income (even if we aren't using it b/c they want to prove you don't have a loss or anything adversely impacting your income)
  • 30 days paystubs, current
  • 2 months current bank statements, all pages; if your bank statements are business accounts, you will need the bank or credit union to put in writing that withdrawing the money does not adversely impact your business.
  • Most recent retirement statement, all pages
  • Full Verifications of Rent/Mortgage (if you do not rent from an apartment complex you will most of the time need to show cancelled checks), Deposits, and Employment. We must prove where the money came from, if gifts, that the gift giver had funds to give, and that you are employed, in writing by the employer- not just pay stubs. A verbal verification of employment will also be done right before closing to prove you did not lose your job between the time your employment was verified and closing date.

Alternate doc (no longer available):

  • W2s rather than tax returns
  • Paystubs rather than verification of employment
  • Bank statements only rather than verification of deposit from bank
  • Most often no verification of rent or mortgage per the computer approval

The all pages issue is a pretty big one- often people don't understand that if there is no significant info. on a page, we still need it! If it has a page # on it and if you exclude it because you know there's no info. on it, the underwriter doesn't know this- they will wonder what you're hiding! And you must explain all large deposits. This, too, is a pretty big one that people often don't understand. Even if you don't need the money in your account for your transaction, once it's disclosed we need to source where it came from- i.e.- even an inheritance. The banks want to know that your money is legitimate, that no one is incenting you to buy them a home, etc.

The paystubs need to be the most recent. If they aren't recent, the underwriter will NOT assume that because you're salaried your pay hasn't changed or that you still have your job. These days, good people are getting laid off left and right. They'll want the most recent paystubs, and they'll do a verbal VOE (verification of employment) right before close to make sure you're still working.

So in general, believe us that we share in the frustration. We share this information to help expedite the process as much as possible and to help set expectations from the beginning, keeping in mind that underwriters will often "condition" for information.

We know you are great borrowers, but now we have to prove it!

Stephanie Frost
Home Team Realty - Ocala, FL

Great info, and you'r absolutely right that many buyers don't or won't believe that no doc loans just aren't out there.  I have one client who has stellar credit, and a fully paid off home that he wants to refinance in order to buy a second home.  He went almost all the way through the process, right up until the lender asked for his tax returns.  Then he flatly refused, saying that the bank had no busienss asking for that.  I tried to explain to him that he simply wasn't going to find a bank willing to write a loan without it, but he insisted on going to not one, not two, but THREE additional banks with no success.  He still hasn't accepted that there isn't one out there somewhere who will write the loan without full docs.

Nov 06, 2009 08:03 AM
Danell Merren

I'm so sorry you had to go through that! We give a "Dos" and "Don'ts" sheet to each customer and have them sign it- and on it, it specifically spells out that you will have to explain all large deposits, and that's another big complaint. I'm like, look, I had you sign this b/c it's a constant issue!

Nov 06, 2009 08:11 AM
Phil Caulfield
Prosperity Home Mortgage - San Carlos, CA
I Get The Loans Done That The Big Banks Don't!

Great explanation, Danell, of all the documents lenders are requiring these days. By the way, there are some stated income programs available here in California through private money sources that I have access to. There are strict requirements on the types of transactions that are allowed by regulation Z. For example, a purchase of a primary residence with stated income is not allowed, unless it is a bridge loan. I've found that getting a stated income loan from a financial institution is non-existent.

Nov 07, 2009 11:49 PM
Danell Merren

Very interesting, Phil! There may be a little of that going on in portfolio around here, but not at any of the banks I work with!

Nov 09, 2009 12:53 AM