What Does It Mean to You, the Buyer, that You Have to Go "Full Doc"

Mortgage and Lending with PRW Lending, Inc BRE 01379811, NMLS 331744

Over the past year, lending guidelines have tightened so much that, if you're paying attention at all you know, buyers have to qualify "full doc" for loans.  That means, full documentation of the buyer's income, debts, and assets. 

It is to the point that I provide my clients an overview letter, explaining the buying process in detail, including the fact that you're going to be asked for information up front, during, and at the end of the loan process. 

That sounds straightforward, but let's take a look at what that means.  First, keep in mind that if you provide an item of information, it needs to be Legible.  I capitalize the word to point to its importance.  The item you provide will be faxed or scanned another time after you send it to your loan officer; the people receiving that last copy are the underwriters, the ones whose job it is to sign off on every item of the checklist for your loan, saying you fulfilled that condition.  Their job is on the line; they don't know you from anyone; they don't trust you; and they don't distrust you.  It simply is their job on the line to make sure that the loan they approve contained each item required on their checklist.  If an item is blurry enough that they can't read enough of the important details there, they will not sign off on that condition.  If you have provided the same copy several times, and they are still saying they cannot read it, then you should go get a new, clean copy and send it in, asap.  If you take several days to provide items you've been asked for, the process will take that much longer.  In this age of internet and fax, it is common for clients to be able to provide items within minutes of being asked for them. 

Let's get to more details:

1.  Up Front:

     a. Income: this is shown by your most recent 30 days' pay stub, last two years' W2s/1099s and lasttwo years of taxes.  Beware: if your lender does not have you give copies of your taxes up front, you risk that when their team pulls your taxes from the IRS (almost all are doing this now, right around when loan docs are signed!), and certain kinds of deductions are too high, or they show less income for whatever reason, you are at risk of having your loan declined right at that last moment!

     b. Debts: this is shown on your credit report which your loan officer pulls.  It lists open lines of credit (you typically need three open!), as well as late payments, collections, foreclosures, etc.  Having an expert pull your credit very early in your home-buying process can save you a lot of time: you can start fixing any mistakes or problems there, allowing you to possibly raise your credit score to qualify, and to get a better interest rate.  If you have to pay off an account, you will need to provide your loan officer a statement showing the payoff, and usually closure, of the account. 

     c. Assets: this is shown by you providing 2 months' worth of bank statements, All Pages.  Your statement has to include the information that identifies it as yours: name and account number(s)!  Yes, the buyer wants to protect his privacy, but as you will read below, full documentation means you have to prove it is yours.  The way this is done is to match up the account numbers on your statements, both up front and later in the process when you show the money going to escrow; this shows it is your money.  More on detail: If your statement on the first page says, "1 of 6," then you need to provide all 6 pages of that statement, even the pages that have none of your personal information.  If your loan program allows you to receive gift funds toward your down payment or closing costs, you need the giver usually to be a family member, to fill out a form explaining its nature as a gift (careful, the letter has to cover about six different topics, so get an official form from your lender!) and show ability to give the gift by providing a bank statement (yes, with their name and account number on it) showing enough money in it to make the gift. 

And more on assets: let's talk printing.  The Underwriter will not accept versions that were Copied and Pasted from an online bank statement web page into a Word document.  The buyer has to show your assets.  Try copying and pasting: the new Word document lets you change anything you want on that page: dollar amounts, bank account number, dates, you name it.  That is why you need to go to File on the web page, then Print, and print all pages.  This gives you a page that says "1 of [x]" at the top as well as a long web site string at the bottom; and it includes your name and account number.  I am finding that the Print Version on the bank web sites tends to strip identifying information from the resulting printout. 

     d. Your Identity: you will need to provide a legible copy of your Driver's License and also your Social Security card.  Legible does not require your picture to be crystal clear, but the Underwriter needs to see that the name matches the one on your loan application and supporting documents, same for the birth date, as well as the date it expires.  Hint: put your ID card on the copier, choose the lightest setting, and make a copy.  Then send the copy by fax, or better: scanned and attached to email. Some clients find that scanning on color photo settings gives a legible copy.

2. During the loan process:

    a. You will have to sign 50 to 60 pages of disclosures (as of January 2010) for a VA loan, less for FHA and conventional; this doesn't include the disclosures you're signing with your real estate agent.  You can meet with your loan officer to go through the disclosures and understand them, or print, sign and scan on your own.  Keep in mind, that with the huge increase in what is being disclosed, there are mutliple repetitions of the same information, of parts of the information, and of the information in different combinations.  It is complex, and add to that the possibility of operator error.  Those people doing your loan are humans.  So, before you see an item and get angry or upset at something, pick up the phone and call your loan officer for an explanation.  If they cannot explain it to your satisfaction, or fix a mistake, consult more professionals.  Try to make it someone who does not have an interest in you ditching your current loan officer.

    b. More income, debt and asset documentation: whatever additional documentation is required to show exactly your income, debts and assets, which the Underwriter determines after a first full review of your file, you will need to track down and provide.  Legible copies, all pages, please!

          1. You will need to provide a bank statement showing the line item detail and the line item showing your earnest money deposit coming out of the account (it went to the escrow to open the escrow).

          2. If you are receiving gift funds, you will have to show your bank statement showing the line item detail of those gift funds coming into the account, or if the donor is wiring direct to escrow, your donor will have to provide his/her line item bank statement showing that gift amount leaving the account.

          3. Why do they track funds?  I cannot point you to the exact portion of a law, but related to RICO and Patriot Act laws, the laws and so the banking guidelines require the lender to show exactly whose funds are being used; they must be yours, and perhaps a family member helping you out.  The government doesn't want to allow anyone - terrorists, etc. - to move/launder money through the lending process.  Does your loan officer or lender suspect you particularly?  No! But the laws require them to show proof that you are using your funds, and this is how they do it.  They even require the documentation from our active duty military members using their VA loan! Yes, each and every one of them.  The rules apply across the board, and no one is singling you out.

3. Toward the end of the loan process:

    a. You will sign loan documents.  This is a separate blog post for another day.  But the documentation part is today: you will need two forms of identification with you at the loan document signing.  You will sign your name the way it appears on the loan docs.  Sorry, if you like signing with your middle initial, but the lender has only first and last names, you sign without the initial.  Or, sign how you like, and if the lender doesn't like it, you will have to resign.  Oh, and the lender (not your L.O. personally, but the company itself) will charge you probably $150 to redraw clean documents, and the notary fee of up to $200 will be added.

    b. You will wire your funds into escrow.  The escrow should give you wiring instructions with the loan documents.  When you wire your funds, go ahead and get a line item copy of your bank statement, showing those funds leaving the account.  Your loan officer will have to submit that as one of the final conditions for funding the loan.

4. After the loan process: Be careful.  You will be getting onto a lot of junk mail lists.  You need to weed out junk mail from the important mail.  If you used a lender that does not service its own loans, you will need to watch for mail from the new servicing lender, because you will need to make payments to that servicer instead of the lender that did your loan. 

That is a lot of the iceburg, underneath the tip of the current "Full Doc" lending environment.  I hope you find it helpful.

Posted by

Lisa Delzompo (951-704-4559)

"May your home always be too small ... to hold all your friends!"

Is your home getting too small?  Need a FREE Home Valuation?  Preparing to Sell a Home?  Click here to submit a form online, or Call Frank at 951-326-7330 for a free consultation.

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Lisa Delzompo 951-704-4559
PRW Lending, Inc - Temecula, CA
Experienced, Trusted, & On Your Mission: Home

Hi and thank you for the feedback!  As detailed as my client letter was before, it was an overview of the buying process, and I am going to work from this draft to create a new client letter spelling it out even more.  Most of my clients actually are grateful that the lending industry is now "dotting all the i's and crossing all the t's."  But it helps to prepare the client from the beginning, saying something like, "We need this information to start, and we will need information throughout the process," and I give a few nit-picky examples I run into all the time, such as showing the line-item details of account statements for funds going into escrow.  That way, when it comes time to ask for that statement, I can call or email the client and say, "Remember how I told you that we would need statements showing those funds going to escrow?  We are at that point where we need this from you."  It goes smoother, and the client usually has planned ahead as to how they are going to get that statement - and indeed anything we need signed - to us quickly.  Will they print, sign, scan and email? Fax?  Do they need to download a free PDF printer (I use the one you'll find at www.cutepdf.com), so they can print their banking statement direct to a PDF file and email, if they don't have a scanner?  This is especially important where we have real deadlines such as last month's short sale that opened escrow on 12/3 and had to close a VA loan by 12/31.  Thanks again.

Jan 14, 2010 12:06 PM #11
Lisa Delzompo 951-704-4559
PRW Lending, Inc - Temecula, CA
Experienced, Trusted, & On Your Mission: Home

Regarding the self-employed, most lenders in the market today do require the tax returns to be pulled, and the income there IS considered the borrower's income.  Depreciation can be added back, but many other business deductions cannot.  However, currently B of A (retail) does have a program that does not require the taxes to be pulled; it requires very high mid-FICO and - I believe - a long history of banking with them so that they can see how much cash comes through the borrower's account over a very long period.  I confirmed it with the BofA rep who refers our company the loans they cannot do, but I did not get all the details from him.

Jan 14, 2010 01:05 PM #12
Tim Storm
Fairway Independent Mortgage Corporation - Irvine, CA
Orange County FHA and VA Home Loan Specialist

Great post! I've been a loan originator for 20 years, but the last 12 months have been by far the most difficult yet. I had no fall out, but really had to get tough with several borrowers in 2009 who didn't agree with the amount of documentation that is now required to close a loan. Surprisingly, some of the toughest deals have been with the most qualified borrowers, who feel the most entitled to the loan because of their excellent credit and big down payment. I now give them the "speech" up front, but I like your letter.

Jan 14, 2010 04:15 PM #13
Terrylynn Fisher
Dudum Real Estate Group - BuyStageSell.com - Walnut Creek, CA
HAFA Certified, EcoBroker, CRS, CSP Realtor, Etc.

Lisa, I'm bookmarking this for my buyers.  Very thorough and real...so often we sugar coat the process and clients are shocked and upset with the constant barage of requests for one more document.  THANKS for taking the time to write this. 

Jan 14, 2010 06:20 PM #14
Marcie Sandalow
Marcie Sandalow, Compass 301.758.4894 - Bethesda, MD
Bethesda Chevy Chase DC real estate

Great post, Lisa.  With all of the changes in lending over the past few years, your "full doc" overview really tells it like it is today

Jan 15, 2010 01:03 AM #15
Marshall Brown
Mid America Inspection Services, LLC - Fargo, ND

As is typical for home inspectors, I fall in to the self employed small business owner category and am SO glad I refinanced a couple of years ago. I thought the paperwork was bad then, little did I know....


Thanks for the post, I know it'll help those who weren't so fortunate.

Jan 15, 2010 02:22 AM #16
Al Kernek
Pacifica Endeavors LLC - Carlsbad, CA

Thanks for the insightful, useful recap, Lisa.  What is not said, but clearly comes through, is that it is very difficult today for self-employed people to get a home loan or even re-fi.  When you run your own business (and this includes Realtors), expenses and deductions are used to offset income to reduce tax liability.  However, this is counter to traditional loan approval processes that are ratio-based.  In short, even though small business owners are promoted as the backbone of America, there is a scarcity of loan models today that will allow them to buy a home.

Jan 15, 2010 03:05 AM #17
Lisa Delzompo 951-704-4559
PRW Lending, Inc - Temecula, CA
Experienced, Trusted, & On Your Mission: Home

@Al, yes, it is very difficult for the self-employed.  And as you probably are aware, the ratios got even tighter under the 12/12/09 guideline change.  These borrowers - if current guidelines don't loosen up - need to be planning a year or two ahead at this point, file taxes that reflect the amount of income they want to show, pay taxes on that, buy the home.  They would need to consult with their tax advisors/financial planners about how to handle the deductions, perhaps file a later amendment. 

Jan 15, 2010 03:22 AM #18
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

It the same kind of personal up close experience like trying to get on an airplane but it takes longer and do it several time while you wait.

Jan 15, 2010 03:46 AM #19
Roger Howell
Fairway Independent Mortgage Corporation NMLS #2289 - Boise, ID
We do business the Fair way!

Great Post,

I think I'll work up something similar.  I will be glad when no doc, fast and easy, stated income stated asset, and other terms used in the past are a distant memory.

Jan 15, 2010 04:22 AM #20
Chrysti Tovani
eXp Realty Realty of California Inc - Fair Oaks, CA
Sacramento Real Estate Agent

This is one of the best explaination letters I've seen.  Wonderful outline and something that definately needs to be explained up front. 

Jan 15, 2010 05:10 AM #21
Lisa Delzompo 951-704-4559
PRW Lending, Inc - Temecula, CA
Experienced, Trusted, & On Your Mission: Home

Updating you on the B of A program: it turns out it is for refi's, not purchases, so it would seem the taxes will be a limiting factor for a self-employed buyer in the current lending environment.

Jan 15, 2010 05:37 AM #22
Karen Rittenhouse
www.JKKPropertyInvestors.com - Greensboro, NC
Real Estate Investor

Fabulous, detailed explanation.

Jan 15, 2010 05:49 AM #23
Gene perez
Greater Mortgage Solutions & Valley Hills Realty - Santa Maria, CA

great post and you really got into some detail ... good job!!!

Jan 15, 2010 06:56 AM #24
Wendy Rich-Soto, Realtor Strategize, Stage, Sell
Keller Williams Realty, LA Harbor - San Pedro, CA
Owner of SellingLASouthBay.com @ the WRichTeam

Great details.  Full doc means...you have to have it all available for that underwriter to see!  Yikes!  :-)

Jan 15, 2010 08:11 AM #25
Beverly Femia
BlueCoast Realty Corporation - Hampstead, NC
Broker Realtor Stager - Greater Wilmington, NC Are

Spot on and we might as well get on board with it - just a return to yesteryear.  Most loans prior to 2000 required this documentation.  However, anyone who never bought a home prior to 2000 will be shocked and they will be busy gathering docs.     

Actually that brings up a good question - when did the first low-doc loans appear?  Does anyone know the answer to that?

Jan 15, 2010 10:42 AM #26
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

This is a great explanation for today's lending realities.  Requirements have been tighter before, and I hope sooner or later things will get a bit easier, especially for the self-employed.

Guidelines were too loose before, but now the pendulum has swung too far the other direction, in my opinion.

Jan 15, 2010 02:48 PM #27
Tim Storm
Fairway Independent Mortgage Corporation - Irvine, CA
Orange County FHA and VA Home Loan Specialist

Quick comment regarding the comments on the difficulty qualifying a self employed borrower. Although I do think there is a place for stated income underwriting, provided a borrower has plenty of reserves, perfect credit, etc, when you get down to it, if a self employed borrower is not showing much income then maybe they aren't making much money. Or writing off items that shouldn't be written off. If a business owner shows $200,000 gross income on his schedule C, but then has $150,000 in legitimate business expenses, then he is making $50,000, not $200,000. There are things, like depreciation, which we can add back to their income, but sometimes, when I see the writeoff's some borrowers are taking, you've got to wonder. I've even seen some aggressive 2106 expenses, which also hurts a borrowers ability to qualify for a loan. Maybe this is the IRS's way of getting people to pay their taxes.

I recently had a self employed client looking to refinance who told me over the phone he makes $150,000 per year. But his tax returns show $30,000. When we went over his 1040's, he just complained about we shouldn't look at his net income. In the meantime, he has maxed out his HELOC over the past 2 years, and now his credit card debt is on the rise. Bottom line is, he makes $30,000 a year but his ATM (home equity) just shut him off.


Jan 17, 2010 05:06 PM #28
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

This is a very detailed post. It should be a public post.

Jan 21, 2010 03:01 PM #29
Dana Devine
Charles Rutenberg Realty - Apollo Beach, FL

good post  i just hope outside buyer/borrowers read it and study it

Jan 31, 2010 04:52 AM #30
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