I sometimes joke with clients that by the time I am done with them I will know everything about them including their underwear size. It seems that lessons have been learned since the crash of the housing market-or at least the Federal Government is requiring lenders learn them as documentation requirements for mortgage loans have increased substantially. (I guess an increase of nothing to one or two documents would be substantial, wouldn't it?)
In any event, it is now required that buyers can prove they have jobs, bank accounts, and that all funds used in the transaction are from legitimate sources. Here is a typical list of items that are required by lenders to process a mortgage loan:
W2's for the past two years
In the case of self employed borrowers, tax returns for the past two years
60 days of bank statements
Large deposits showing on the bank statements must have sources provided
30 days of pay stubs
Current identification
Rent checks for the past 12 months in some cases
That is the starter list. For many borrowers that will be enough to get the loan approved. It is highly likely that updated pay stubs and bank statements will be required immediately prior to closing to verify that the funds to close are still available and that the borrower is still employed.
If there has been a divorce, death, release of judgment, prior foreclosure or bankruptcy or any legal situation that impacts income such as child support paid in or out, there may be a requirement for the legal documents that support those issues.
In addition, if the buyer is using a government loan such as USDA, FHA or VA there will be inspections that may be required such as termite or well and septic depending on the situation and the lender. The inspection results all become part of the loan file. Typically the whole house inspection is between the buyer and the inspector and not required by the lender.
Our company sends out surveys to all of our clients once their transaction has closed. These surveys evaluate customer service throughout the transaction. One comment that I see every now and then is that documentation requirements seem excessive. I can see how a buyer would think that to be the case. Let me assure you of a couple of points:
1) We never ask for anything unless we are 75% certain we will need it. We make these assessments based upon our experience with the loans that we have closed in the past. Most of the time the documentation requests originate in underwriting. There is no choice in the matter-the house won't close without the request being satisfied. Sometimes if a document is difficult to obtain there are alternate means of supporting the request.
2) Many of the items required are now mandated by the Federal Government, so once again no one has a choice in the matter.
Once in while we lose time processing a loan because our borrower for one reason or another doesn't give us what we ask for. For instance a W2 is not the same as a tax return in mortgage lending and you can't substitute one for the other. So it is important to get us the specific item we request and the sooner the better. Underwriters don't look at loan files on a piecemeal basis. Each file has its place in line. After the initial approval, it goes back into queue waiting on the additional items the underwriter has requested to complete the file. We sent all the items at one time so the underwriter can sign off in one session.
As a general rules the items we request are going to be items that will be requested by any lender. The documentation for mortgage loans is standardized and we try to choose partner lenders that stick to the basics as much as possible. But they are and we are accountable to the Federal Government. If a loan file is audited and found to be lacking in required documentation, the buyer will be contacted to provide the missing materials.
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