Chances are you won't have to trundle your documents in using a shopping cart, but there are certain items that we need from you to document your job, income, assets, liabilities etc. That only seems logical, right? We kind of got in trouble with all those low doc, no doc, and no income loans that were all the rage in 2007.
Unfortunately, I have had more than a few customers comment that they thought that the documentation requirements of mortgage lending was excessive. This comes out of the feeling that once the customer has given the lender everything they could possible ask for, the lender wants something else-and at seemingly very inopportune moments-say the day of closing.
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What's up with that is this: you may have heard of Fannie Mae and Freddie Mac. Those two corporations are known as Government Sponsored Enterprises. In other words, Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. (The certain sectors of the economy would be you and me-everyday people.)
That clears it up doesn't it? Actually, Fannie and Freddie provide money on the secondary market for more loans-in other words, make it possible for lenders to sell mortgages to make money for more mortgages. So Freddie and Fannie have a stake in whether or not your mortgage loan defaults. Without Fannie and Freddie it is likely everyone would be required to put 20% down, because without that government backing, private investors would probably not want to offer low down payment loans. Lending is, after all, about risk. No one likes losing money, not even big corporations.
Just to be clear, when Fannie and Freddie say "Jump!" and everyone in lending says, "How high?" Part of the how high is that Freddie and Fannie want to be sure that every I is dotted and T is crossed before a loan is closed-or rather the lenders do so that Freddie or Fannie won't kick the loan back and require the lender to buy the thing back which in turn could impact everyone on down the line-even you. You might find yourself in a position in which your lender is bugging you for more documentation AFTER the loan has closed. Ignore them at your peril-they could call in the loan and you would have to find alternate financing. That doesn't happen often, but more frequently than most people would ever guess.That is why the documentation requirements seem so nitpicky.
The following is the basic list of documents that you will have to provide in order to have your mortgage loan processed:
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W2's-the most recent two years - you will note I said the most recent. They also need to be consecutive-not 2009 and 2012-this year for instance we need 2012 and 2013.
Pay stubs-the most recent 30 days (1 month)
Bank statements-the most recent 60 days (2 months)
Federal Tax returns- the most recent two years
A government issued ID such as a driver's license, passport, or military ID and a social security card (These are items required by the Patriot Act-so no wiggle room there. I lost my social security card doesn't work.)
The above items are the basics that start out your loan file. Along the way more items may added such as divorce decrees, child support orders, bankruptcy papers, sheriff's deeds, school transcripts, verification of payments from student loan companies, powers of attorneys, proof of legal entities, the proof of sale of your current home. The list is possibly endless. Where we can be proactive we try to obtain these items for the loan file prior to loan submission but sometimes the layers of the onion begin to unpeel and it just seems to go on and on. Why do we have to make you dig around in musty old file drawers or moldy boxes in the basement?
Divorce decrees and child support can impact income, deferred student loans will come into repayment at some point, people signing off on documents pertaining to a loan and a purchase agreement need to be legally entitled to do so...get my drift? No stone can be left unturned that could result in a legal issue with ownership of the property or your ability to repay the loan.
Just as a word to the wise, substitutions don't work. Maybe you don't want to get into the storage shed - it just seems like too much work so you try to slip in the W2 you found at the back of the file cabinet instead of the one requested. Just forget about it. When an underwriter requests an item-that is the item they want. It is kind of like going to a restaurant and ordering mashed potatoes and getting grits. They are both white and kind of dense, but not the same thing at all-not really.
And the truth is that I absolutely hate to ask for one more thing when I have asked a borrower for everything but their underwear size, but sometimes in order to get the loan approved or cleared to close we need that one last thing. Those look like a 34 to you?
It is not our intent to drive people nuts with minutiae. Whether we like it or not (and often we don't like it) details, teeny-tiny micro details are the name of the game in mortgage lending. You can and will be denied your loan if you cannot or will not provide what is being requested, so as they say, it is impossible to fight city hall. I know it feels like a type of torture from time to time and even the most qualified borrowers have to submit if they want the money. (I don't suppose that any of you saw that even Big Ben Bernake was denied for a mortgage loan recently. It seems that he went from a nice safe government pay check to self employment as a consultant and he doesn't have the required two years of tax returns yet. So the amount of money he had to put down, his truly amazing credit score and the fact that he was the Director of the Federal Reserve Bank didn't mean bupkis. If you are being asked for all those items, you are in excellent company.
The one thing that I always want borrowers to know is that we don't ask for items unless we need them. That, you can count on.
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