Mortgage Documentation Nightmares
For those of you who have purchased a home using a residential mortgage you may know where I am going with this blog depending on the experience level of the mortgage professional you used. For those of you who are about to purchase a home using a mortgage or are refinancing your current loan I hope this can help you streamline the process or at least explain why you need to provide what you are being asked.
Not all mortgage consultants are created equal. The mortgage process starts off with getting a complete and accurate application. This is the foundation of successfully obtaining a mortgage. It takes years for a mortgage consultant to be able to take a complete application and know the correct questions to ask. This is more of an art than a science. Over the years I have been approached by borrowers who have been turned down needlessly at the last minute. Most of the issues I have encountered could have been avoided if the consultant would have taken a complete application and asked the correct questions from the start. According to the Joint Economic Committee of Congress, the average foreclosure costs a lender $77,935. Every time a home goes into foreclosure it leaves lenders asking what could have prevented this. Realty Trac notes in a North Carolina State University study that from January 2007 to December 2011 there were more than four million completed foreclosures and 8.2 million foreclosure starts. That’s a lot of questions. It can feel like you’re being targeted even if you are not a credit risk. Don’t take this personally. As responsible home owners the change in the industry from giving loans to all that apply to stopping short of asking for hair samples is much needed. If you have an 740 credit score, at least 2 years at the same W2 or hourly job, enough money in your bank showing only payroll deposits for 2 years, your name is not the same as your fathers, and the credit bureaus don’t have other addresses listed for you then chances are you will only have to supply the following list with minimal added requirements. But, most have something that will prompt the underwriter to ask for more documentation. View getting a mortgage like getting into an exclusive club. As a homeowner you don’t want mortgage companies to make it easy to get a mortgage and default. Foreclosures in your neighborhood hurt the value of your home that you made sacrifices to buy.
Here is a standard list of documentation that I request and a brief explanation of the most common issues that arise. I could not list every scenario because I would not have time to write it and you would not have time to read it.
*30 days most recent Paystubs (3 if paid bi-weekly 5 if Weekly)
If the year to date number is inconsistent with the gross yearly income means that you may be making less than you have in the past. Underwriters are required to prove an ability to repay. If you took time off or experienced a cut in pay make your mortgage professional aware of it.
*Physical address and phone number of your place of employment
It is common for corporate employees to be based out of a branch. The underwriter will be checking to see if the home being purchased is being purchased under the correct terms(Primary, second, investment). The distance of your commute to work is a good indicator if you are buying this as a primary residence. The purpose of the purchase or refinance has different risks associated and will require different adjustments in pricing. This is called risk based pricing. If you work in California and are buying a home in Pennsylvania it’s safe to say that the home would have to be either a second home or investment property.
*2 years most recent W2s
You must submit all w2s that you have from the last 2 years. The lender obtains a copy of your tax transcripts which gives the bottom line totals. If the W2s you submit don’t match the totals on the transcripts the underwriter will request additional W2s.
*Copy of most recent 2 months actual bank statements showing sufficient funds to close. Online screen shots are not acceptable. (all pages, actual statement. All deposits/transfers not clearly marked as payroll must have satisfactory documentation proving source)
If you are getting a Conventional loan you will be required to document any deposits into your submitted bank statements that are more than 50% of your gross monthly income. For FHA it is still underwriter discretion as to whether deposits are going to be required to be documented.
In today’s digital age it is common that I get online screen shots or transaction printouts that do not show the full URL at the bottom of the pages. Even though most banks are now accepting printouts if the full URL is shown at the bottom the best documentation are copies of the actual bank statement. Most banks offer online PDFs of the actual bank statements that are just like what you would get in the mail.
*Copy of valid Photo ID
I don’t often see this as a problem other than if you make a copy and fax it may be illegible. Easiest thing to do is take a picture of it with your smart phone and email it.
*2 years most recent Federal (only), signed Tax Returns (all Page, all schedules)
These may or may not be required. I suggest they are always submitted so that I can determine whether we need them. I may also choose one lender over another depending on what the tax returns contain. The key items I look for is if you file a Schedule C, E, have unreimbursed business expenses, claim dependents, and what address that you listed on the returns for the last 2 years. If the tax returns match your application it reduces the amount of problems that can come up.
I hope this helps you all!