Over the last couple of years the mortgage industry has made several changes and most of them have made our life a little more difficult. For those of us that have been in this industry for several years, it has become more like it used to be! I like to say that we have gone back to the way it was in the early 90's but with less common sense underwriting.
As a homebuyer you need to make sure you can verify income, assets and credit. During the mortgage process, make sure all your payments are on time. Your lender may have to update your credit report and if there are late payments or new loans, you may no longer qualify for the home you want to buy. If you have large deposits in your bank account, make sure you keep documentation showing what those deposits are from. We used to require explanations on inquiries on credit reports, over the years, that ended, now it's back again! Underwriters may require explanations on inquiries, late payments, overdrafts in your checking accounts and large deposits in your bank account.
Many lenders are pulling credit reports more often than the required 90 days. Investors are pulling credit reports when they buy the mortgages after closing and if there is new debt or late payments, the investor may not buy the mortgage. Any new debt or late payments can affect the debt ratios and therefore the approval on the mortgage. If the investor sees inquiries that are not addressed by underwriters, they may question it and want explantions.
You will need to provide your lender with a recent paystub (maybe two), 1-2 months of bank statements (sometimes 3 months if you are using child support, retirement or social security income to qualify), 2 yrs of w-2's and most likely 2 yrs of federal tax returns. If you have child support, you will need to provide documentation showing how long the support will continue, typically a court decree. If you have retirement income, your tax returns and any documentation from the social security office or your pension will be needed. Sometimes you will need to write a letter of explanation regarding late payments, employment gaps, large deposits. We need all pages of the bank statements – if the statement says 1 of 6, we need 6 pages even if the last page is blank. Underwriters want to see all pages to make sure there isn't a loan or something else that can affect your ability to repay the mortgage. If you are getting a gift, you need a gift letter and on an FHA loan, you need to show that the donor has the ability to give the gift. That means a gift letter and a complete bank statement showing the funds in the account.
If you have any changes that happen during the loan process, let your loan officer know. It is much easier to fix problems during the process rather than waiting until closing and finding out that you may not be able to close on time – or at all.
It may seem like a lot of documentation, but after the last few years of a paystub and a bank statement, we are back to the old ways of documentation!! The US Senate is working on a bill that requires all lenders to show that mortgage applicants have the ability to repay the mortgage – Minnesota has required that since 2008 with an exception for federal banks.