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.