Verification and Validation – how it can affect your loan.
Today’s economic crisis has taught mortgage lenders one huge lesson they are all living by - verify and validate every loan file. Documentation – sounds like an easy task, but simply turn the clock back just a few years to the days of stated income loans, no income loans and even no income, no assets, no doc loans (just give me a high credit score) and you have the reason we now live in a Full Documentationworld. Did these loans make sense? Opinions vary, but eliminating as product that was intended for self employed borrowers has restricted business owners from tapping needed equity to stay operational. Ask any business owner you know what they think the chances are of qualifying for a loan would be today.
Below are 7 items that must be verified and validated these days when applying for mortgage financing:
Employment – Even after a loan has been cleared to close, telephone confirmation of employment is now routine just before a loan is scheduled to fund. In other words, don’t quit your job!
Income – 30 days worth of pay stubs. Previous two years W 2’s. If you show any kind of business income or loss, last two years tax returns (business and personal). Signed 4506-T forms at loan application allow lenders to order tax transcripts from the IRS to match up to your income… And they all order them. If you show a loss on your tax returns tell your loan officer upfront and save yourself frustration. This is not always a deal killer but will affect your debt ratio.
Assets – When a loan is run through automated underwriting it takes into account the assets that are stated. If you show money in checking, savings, 401k or any other investment, you will want to validate it by providing statements. Many times the final page or pages of the statements are blank. Include ALL pages of your statements regardless if they are blank. Note – if you are printing these documents from the internet, as a security measure, institutions do not include name or account number. This would not be acceptable documentation.
Deductions – Provide supporting documentation for payroll deductions such as child support, alimony, garnishments, 401k loans. Anything that affects your debt ratio must be documented which would include providing divorce and separation agreements and terms of of 401k loans.
Appraisals – This verification is done behind the scenes, but rest assured, even with all the new HVCC appraisal regulations, lenders validate appraisal figures through automated valuation models (AVM’s). The days of stretching home values in order to close a deal are long gone.
Gift Funds – Lenders want to see gift money comes from an acceptable gift source. And they way to show this is a paper trail… A bank statement from the gift source showing funds were available and a copy of the transaction transferring monies from the gift account to the borrower if deposited into borrowers account.
Earnest Money Deposit – Also referred to as the EMD. Many times this single item goes undocumented and causes a delay in clearing a loan to close. Sure we need a copy of the front of the check, but lenders want to see that the money was deposited before crediting it to the transaction.
These are just a few examples of documentation to gather when applying for a mortgage. This is just a guideline to use and lender requirements can and will vary, but providing the above documentation to your loan officer, you will greatly reduce the chances of frustration and delays in your loan closing. The mortgage process can be stressful enough these days. Supplying the required documentation the first time a loan is submitted to underwriting will increase the chances of a stress free closing.
Contact The Mortgage Mark with any questions!
www.themortgagemark.com mwilkins@capitalfmc.com
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