How often will I have to supply documentation for a mortgage?

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OnionI've often thought that the loan process for a borrower is similar to peeling an onion. At the very beginning stages, when a borrower is considering obtaining a mortgage and they discuss their scenario with their mortgage originator, they appear to be a smooth, shiny Walla Walla Sweet. As the process continues, more layers are removed as documentation is provided. Sometimes when several layers have been peeled away, you no longer have an onion or at least, not the one you originally started with. It's crucial that a mortgage originator takes an in-depth interview with their clients before they enter into a transaction (purchase or refinance) to make sure as much their financial information has been addresses as possible. There may be a significant difference between how a borrower views their financial scenario and what their supporting income and asset documents tell to an underwriter. 

Here are some of the stages that a borrower can expect to have documentation requested by their mortgage professional:

Preapproval. A preapproval is different than a "prequalification". When you're preapproved, expect to provide income/employment and asset documentation to support the information you've provided to your mortgage originator. The items that are requested may be standard or specific if the mortgage originator used an "automated underwriting system" (AUS).  NOTE: if you have not provided any supporting documentation to your mortgage originator, you probably have not been "preapproved".  It's possible that if it's been a while since your mortgage was preapproved, you may need to provide additional information (recent paystubs or bank statements, for example) to update your preapproval.

Processing. Once you have a bona fide transaction, your loan application is "in process". At this time, my Processor will review my clients file with a fine tooth comb to see if there's anything I may have missed. It's possible at this stage, that a borrower may be asked to provide additional documentation. Depending on the loan program, sometimes longer time periods are required (30 days of most income documents or two months most recent paystubs, for example). This is also the stage when IRS tax transcripts are pulled (from your signed 4506T) which may also trigger questions and the need for additional documentation. Our goal is to provide a solid file to our underwriters so the end result is less "conditions". 

When your appraisal comes in you will be required to sign disclosures acknowledging you received a copy of your appraisal. By the time you're done autographing all of your paperwork required in a mortgage transaction, you may feel like a very popular rock star.

Underwriting. Once we have a complete loan package with all of the supporting documents, the file is submitted to our underwriting department. Once again, the transaction is being closely reviewed to make sure the documentation provided is in-line with the program guidelines and lender overlays. Once we have preliminary approval from underwriting, it's normal to have some "conditions" which typically means…yep, you guessed it, providing more documentation or writing a letter explaining a specific circumstance (LOE). 

There are primarily two types of conditions from underwriting:

  • Prior to Doc: these items must be provided before loan documents can be prepared.
  • Prior to Funding (or Closing): these items will not hold up your loan documents being prepared and can be provided prior to your loan closing.

Prior to funding, your employment is re-verified and a soft pull on your credit report may be done to verify you do not have any new debts and that you are still employed. If there are changes to your loan application (new debt or employment) be prepare to provide more documentation. If you've made changes to your application (debts, assets, income or employment) during the transaction – you must notify your mortgage originator. You're signing a "final" loan application at closing which needs to reflect your financial scenario – if it does not, you may potentially be commiting fraud. In addition, when changes to an application are found at this late stage in the transaction, it's probable the closing will be delayed.

Every time a document is provided to underwriting for review, it's possible it may trigger a new condition.  For example, a bank statement may disclose large deposits, which will need to documented where the source of funds came from or it may show the borrower has bounced checks, which could require a written letter explaining why the NSF happened. 

Why all this documentation? Basically, it's thanks to recent years past with the mortgage meltdown and fraud. Providing everything that is requested by your mortgage professional will help expedite your transaction. 

The days of "stated income" loans are gone. There are some streamlined mortgages that allow for less documentation, such as an FHA streamlined refinance and HARP, depending on the automated underwriting response from Fannie or Freddie.   

If you're interested in getting preapproved for a mortgage for a home located anywhere in Washington State, I'm happy to help you. I have been helping Washington home owners at Mortgage Master Service Corporation buy and refinance since 2000.

Photo Credit: Doc Wert via Flickr

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  1. […] Borrowers who have recently purchased a home or closed on a non-streamlined refinance would most likely agree with Ben Bernanke's views on underwriting guidelines. And for the most part, I do too. Today's home buyer will often find every aspect of their income, assets and credit scrutinized. For example, Form 4506 (which was once used primarily for stated or no-income verified loans) is now pulled on every mortgage in process to obtain a copy of the tax transcripts for the the past two years. Any discrepancies between the 4506 and income supplied must be addressed, which often leads to the borrowers having to provide complete tax returns instead of just their W2's. If a borrower has deposits on their bank statements that are not easily identified, they can expect to show proof of where that deposit came from. Credit reports may disclose information that the borrower may need to address as well beyond the good old "inquiry letter". Now they disclose information about activity associated to a borrowers address that may or may not relate to the borrower. Don't get me wrong, loans are closing however the process for some can require a great deal of patience and paperwork. […]

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