Can’t They Just Trust Me? You Want More Documents? I promise to pay my mortgage back. Why do they keep asking for more documents? In the early 2000s that is exactly what the mortgage industry did- big trust and few documents. As a result, the American Dream of homeownership was realized by a record number of people. Mortgage interest rates were low and the mortgage industry offered easy access to money for risky borrowers and offered risky products- the subprime mortgage market flourished. However, the subprime market resulted in too much borrowing based on flawed financial modeling and the assumption that home values would always go up (and that all lenders were honest). In 2007, the United States economy entered a mortgage crisis that caused panic and financial turmoil around the world. The financial markets became especially volatile and the effects lasted for many years. People started defaulting on loans in record numbers and home prices fell. Banks and investors began losing money. Financial institutions decided to reduce their exposure to risk and banks hesitated to lend to each other wondering if they would ever get paid back. The economy came to a grinding halt.
Again? Can’t they just trust me? Definitely! We trust you! We trust you to patiently and expediently provide the proper documentation so we can help you realize the American Dream of homeownership. If you are a wage earner you will probably be asked for W2s and Tax Returns for two years, paystubs for two months and bank statements for two months to be preapproved. If you are self employed you may need to provide two years Tax Returns, two months bank statement and a Year to Date Profit and Loss from your Certified Public Accountant.
Can’t YOU just trust ME? Please! If you have provided everything that has been requested of you initially, additional documents may be required throughout the home loan process. Again, trust me! Not my rules but please read these explanations as to why a loan originator may ask for more documents throughout the home loan process. Knowledge is power! Let me help you understand the WHY?
Here a just a few reasons why you may be asked to submit additional documentation during the home loan process:
- Undisclosed Debt- undisclosed debt shows up on your credit report. Borrower discloses that the debt belongs to the ex-spouse. Is the borrower required to pay spousal support which would need to be added to debt to income? Or, can we prove that the debt has been legally assigned to the ex-spouse? In this instance, the borrower would be required to provide all pages of the Divorce Decree and/or Property Settlement Agreement.
- Credit Report Inquiries- credit is pulled initially at the time of pre-approval. If there are a plethora of inquiries from car dealerships you will probably be asked if you recently bought a car. If you did and it hasn’t shown up on your credit report yet- it will! A soft pull to your credit is made before closing your home loan. Don’t let it show up then. You may disqualify yourself for the home of your dreams when that new vehicle is added to your debt ratio.
- Large “Cash” Deposits To Your Bank Accounts- was money borrowed to borrow more money for a home loan? Is there some sort of money laundering scheme transpiring? Most likely not. If “cash” deposits show up on your bank account they will need to be “tracked and traced”. If that can’t be done, they will need to be excluded from your available funds. Also if there is evidence of activity from another bank account- the other account statements will be required to “track and trace” those funds.
- Name Variations On Your Credit Report- a married name pops up on the credit report. Divorce decree please. In addition, a borrower should provide the name on their driver’s license, birth certificate and social security card at time of application. Sometimes, these documents vary. Name changes due to marriage, misspellings and a variety of other circumstances will trigger additional documentation.
- Child Support Payments On Paystubs- yes, please. All pages of the Child Support legal documents will be required.
- You Receive Child support- again, all pages of the Child Support legal documents and children’s birth certificates to prove how long the support will last.
- Timing Of Original Documents- most recent copies of documents will be required. If we preapprove you in January and you find your home in February, current bank statements and paystubs should be available. In addition, if your home inspection period is lengthy and according to your purchase agreement you will not close your home loan until mid-March, you may be asked for current documents again.
- Regulatory Responses to the Mortgage Crisis- click here to find out more about laws and regulations that resulted from the Mortgage Crisis.
While your home is not made of paper- the documents that drive your home loan are. We, in the mortgage industry, DO want to be environmentally friendly (let’s save the trees) but we DO NOT want to repeat mistakes that were made and lead to the Mortgage Crisis. Document! Track and Trace! Verify and Confirm! Re-verify and Re-confirm! It WILL be worth it when you become a homeowner. Owning a home IS the American Dream. Homeownership allows people to take pride in a property and become an integral part of a community.
Kara Davis of Crew Lending can help you achieve the American Dream of homeownership. She is a leading provider of mortgages in Lake Charles, Sulphur, Westlake and the entirety of Louisiana. She can also lend in 47 other states. Remember that customer service is key in the mortgage lending process. Kara Davis will help you understand the loan process. For more information call Kara Davis at 337-842-0115 or click here.