It's not a secret that mortgage lenders ask for a lot of information. It's also not a secret that some banks or mortgage company's may ask for more information than another mortgage lender. Many banks have overlays and that means we need more documentation than what is actually required. Why?
Typically most lenders need the basic information – two years of w2's, two month's of bank statements and at least one paystub. From there it depends on the individual file. Some programs require more information. For example, some of the first time home buyer programs require 3 years of tax returns. Some require 3 months of bank statements. Some lenders want more explanations than other lenders.
First of all, remember that no two borrower's are the same, just like most properties are not the same. Just because your neighbor was approved, does not mean you will be. There are also many different types of loans, from FHA to VA to conventional. There are specialty programs such as Minnesota Housing's First Time Homebuyer program. There are down payment assistance programs that can be used with different first mortgages. Each program has different guidelines.
Because of the mortgage meltdown in the last few years, lenders are more cautious and want to make sure they are documenting as much information as possible. They want to make sure that they will not have to buy a mortgage back if it does not perform (in other words, if the borrower goes into foreclosure).
Some of the typical overlays are credit score driven, for example, FHA only requires a 500 credit score. However most lenders want to see at least a 580, but more often they want a 620-640 credit score. Another frequent overlay is the debt to income ratio. FHA loans may be approved with a back ratio (total debt to income including your mortgage and all other debt) through an underwriting system up to 56% of your total gross income. There are lenders that will not approve that loan through underwriting and if they do, they want to see several compensating factors. Compensating factors are things like a first time home buyer class, a current housing payment that is within 10% of the new payment, no late payments, extra reserves.
Once you have been through the mortgage approval process, if you are concerned about something, talk to your loan officer. Maybe the lender you are working with has some additional overlays that may affect your ability to get a mortgage loan. Maybe another lender will not have the same overlays. See if your lender has the program you need, maybe you will need to talk to another loan officer to get a specific program. I have had borrowers referred to me from other loan officers if they know I have a program that a borrower needs.
Mortgage rules are changing again this fall, we are already seeing different rules that will affect borrowers. Some changes are for the better, some aren't. If you have an approval now, you may want to ask your loan officer if there are any changes coming that could affect your approval. Stay in touch with your loan officer so you know if there are changes that may affect you.