Reader Question: Do underwriting guidelines vary between lenders?

I recently received this email from a Mortgage Porter subscriber:

Do different banks need different underwriting documents? I am talking to two lenders now, and one will give me a lower rate but asks for the bank statement from my family which wires me money; the other one has a higher rate but only needs a gift letter. Is it because some banks are more strict because of their lower rate? Thanks.

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Fannie Mae and Freddie Mac improve HARP 2.0 Underwriting Guidelines

On Friday, Fannie Mae and Freddie Mac announced much needed updates to underwriting guidelines for HARP 2.0. The Home Affordable Refinance Program (HARP 2.0) has helped many Washington state homeowners with conforming mortgages (securitized by Fannie Mae or Freddie Mac prior to June 1, 2009) take advantage of historically low mortgage rates regardless of their home’s current equity (or lack thereof). You can learn more about the HARP 2.0 program by clicking here.

The recent updates to HARP 2.0 will allow more home owners to have access to this program by reducing documentation requirements for some borrowers. Here are some of the improvements:

  • Reduced documentation for income and assets. NOTE: Form 4506 and verification of employment will still be required. Lenders will not be required to verify large deposits.
  • Allowing borrowers with assets to not have to document income. This is available when a home owner has at least 12 months of their proposed new mortgage payment (PITI) in savings. The assets may come from checking or savings, stocks or vested retirement accounts.
  • Improvements to when a borrower is removed from the mortgage. Previously if a borrower was being removed with the HARP 2.0 refinance, guidelines required proof that the remaining borrower made the mortgage payments for the last year with their own separate funds (except in the case of death). Now with HARP 2.0, in the remaining borrower can qualify on their own (debt to income at 45% or lower and credit scores of 620 or higher) they may qualify for a HARP 2.0 refinance.

Remember, banks and lenders may layer their own underwriting guidelines to Fannie Mae and Freddie Mac’s HARP 2.0 program.

If you have been turned down for a HARP 2.0 refinance before, it may be worth checking with your local, licensed mortgage originator to see if you are now eligible. HARP 2.0 is available for owner occupied, vacation homes and investment properties.  I can help you if your home is located anywhere in Washington State – click here for your HARP 2.0 rate quote.

How to Prepare for the Final Phase of the Mortgage Process: Underwriting

You’ve completed a loan application and have provided your mortgage originator with your income and asset documents. You’re told your loan is being submitted to “underwriting”. During the stage, the information you’ve provided is being scrutinized by a person (the underwriter) to make sure that it meets your specific program guidelines and the investor/lender guidelines. 

Hopefully your mortgage originator has done a solid job with your application by addressing possible questions the underwriter may have and gathering supporting documentation. Even if your mortgage originator and you have prepared the perfect loan ap for the underwriter, additional items are often called for after the underwriters review. These additional items are referred to as “conditions” to the loan approval. 

Here are a few quick tips to help make this process a little smoother.

  • Save everything. If you’re a shredder, like me, it’s time to stop… at least until after your loan has funded. Keep your paystubs, bank statements, retirement and asset accounts – you will probably have to continue to provide updated information to the lender.
  • Be prepared to document where large deposits ($1000 or more) came from on your statements. This means providing deposit slips and/or copies of the cancelled checks.
  • Provide “all pages” of items requested unless otherwise instructed. If an underwriter sees that your bank statement shows 1 to 4 pages, and you’re missing the last page (even if it’s blank), you will be required to provide this. “All pages” also needs to be provided of your tax returns, divorce decrees, child support orders and other documentation if requested by the underwriter. Just providing pages you feel are purtinent may delay your loan approval.
  • Avoid moving funds around. You will need to show where the funds came from and just saying “can’t you see I have gazillions in this account” won’t cut it with the underwriter.
  • Do not apply for credit. This creates an “inquiry” on your credit report. Your credit report is checked prior to closing and, if you have a new inquiry on your credit report, you will have the opportunity of explaining this to the underwriter. If you do obtain new credit, your loan will need to be re-underwritten with the new debt — even if there is no payment due (such as 60 days same as cash, etc.)
  • Provide requested documents promptly
  • If you’re planning a vacation, let your mortgage originator know as soon as possible.

Quickly providing everything that is being requested will help avoid delays with the mortgage process. 

In my opinion, a professional Mortgage Originator will essentially “pre-underwrite”  you as they take your application. They know what questions to ask and what documentation to provide the underwriter.  This is much better than working with a mortgage originator who has little to no experience in closing transactions, which you will probably find at large banks or large internet lenders.

If you’re interested in getting preapproved for a mortgage on a home located anywhere in Washington, I’m happy to help you!

What Do You Need for a Preapproval?

preapprovalIf you’re considering buying a home, many real estate agents and/or sellers will require a preapproval letter. A preapproval letter is different than being “prequalified”. Being prequalifed means that you have provided verbal information to a mortgage originator to get an idea of what you qualify for. Being preapproved means that you are providing documentation that supports the information you have provided. Income, employment, assets and credit are verified for a preapproval.

Some preapproval letters aren’t worth the paper they’re written on. Especially if the mortgage originator you’re working with does not require supporting documentation before preparing the letter. If you have not provided supporting documentation (listed below) to your mortgage originator – you’re probably just prequalified and not actually preapproved.

Here is a list of documents you may be required to provide in order to obtain a preapproval:

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Do I Really Have to Provide All Pages of My Bank Statements?

When assets are being used for down payment of a new home, towards closing costs on a refinance or even to document that the borrower has enough reserves (typically a couple months of mortgage payments) in the bank after closing; they need to be documented.  

This means that depending on how much assets are required to be documented, you may have to supply copies of your bank statements, stocks, retirement or other asset accounts…all pages.   “All pages” of your accounts means that if you have a bank statement which states there are 1 of 4 pages, all four pages must be provided to the lender even if the last page is blank and only states “page 4″.   And even if your portfolio statement consists of 20+ pages, be prepared to provide the entire document.

Why is this?  The truth is, your statements are being reviewed for large deposits (plan on documenting where your large deposits come from) and even NSFs/bounced checks.  Every page is being reviewed.

You will also need to provide documentation to show that, at the very minimum, you have enough funds to cover the funds due at closing and the required reserves (Mortgage Master Service Corporation has a minimum two months reserves required–this may be higher depending on the type of transaction).  Lenders typically use what is showing as the ending balance on your most recent bank statement for your current balance.  If you have other properties, you will most likely have to show additional reserves for each property.

It does seem very anti-environment with all this paperwork to obtain a mortgage–thank goodness for PDFs!

Funds for closing when you’re buying a home

Mpj030576000001Whenever you are buying a home utilizing a mortgage, your lender is going to need to know where your funds that will be used for the down payment and closing costs are coming from.   And in most cases, they will want the funds to be “seasoned” (statements showing the funds have been in  your account for a two month minimum).

A lender wants assurance that the borrower has enough funds for closing and ideally, enough savings when all is said and done after closing, to have a cushion (2-6 months of your proposed mortgage payment aka “reserves”).  Typically a lender is looking for 2 months of asset account statements.   If large deposits are shown on the statements, the lender (or underwriter) may will require to have the large deposits explained and possibly documented.    Many people have their paychecks go into their bank account and, like the tide, out goes the money.  What ever is shown as ending balance is what the lender will use for your loan application and approval purposes.

Depending on the mortgage program you’re utilizing for your financing, different types of funds for closing may or may not be acceptable.   Here is an example of some traditional funds allowable for closing:

  • Checking and savings accounts
  • 401(k)s and other retirement accounts
  • Stocks, Bonds, Mutual Funds, etc.
  • Income Tax Refund
  • Seller closing cost credit (varies depending on program and loan to value)
  • Gifts from family (depending on loan program)
  • Proceeds from the sale of property (real estate or other)
  • Inheritance
  • Sale of personal property

Cash on hand (also referred to as “mattress money”) is a no-no.   If you’re planning on buying a home in the next 3-6 months, you’ll want to get your dough into a bank account where a “paper trail” can be established of your funds.

With today’s automated underwriting and all of the available mortgage programs, more or less documentation may be required from the lender.   The above list is only a sample.  The requirements for your personal financing may be different.    It’s important that regardless of what funds you’re planning on using for your down payment and closing costs, that you discuss it with your Mortgage Professional.

If you are considering buying a home located anywhere in the State of Washington, I’m happy to help you with your mortgage needs, including reviewing your down payment options.

Related Post:  Qualifying for a mortgage: Funds for Closing

EDITORS NOTE:  This post was last updated on April 11, 2011.