Mortgage underwriting rules have gone from a bad extreme of four or so years ago to an equally bad extreme today.
In order to obtain a mortgage, you basically need to be prepared to go into a full documentation loan. You will need pay stubs, W-2’s, asset statements for a couple of months. If you’re self-employed add to the pile your tax returns. All pages will be necessary. (If your accountant sends you them in a PDF, send the PDF). If you own a business or are a partner in a law firm, be prepared to include business returns including K-1’s.
If the income of the applicant has fallen over the last year, then be prepared for a letter of explanation so the underwriter gets comfortable with your income. For self-employed income from tax returns, it is generally averaged for the last couple of years.
For assets, one needs to start with bank statements for sixty days, all pages, even if the last page is an advertisement for other bank products. Next are stock and 401K statements for sixty days. If there are deposits on the bank and or stock statements, the underwriter is likely to ask for explanations for those deposits. Even small deposits of one or two hundred dollars will be scrutinized.
With all the introspection of assets these days, it makes sense to plan ahead on what monies one wants to use for an eventual home purchase. For starters, try using direct deposit for paystubs. Do not cash and then redeposit paychecks. Otherwise one is making a simple transaction more involved then necessary.
If a consumer is getting gift money, it is a good idea to know ahead of time what is going to be asked. First, the person who is gifting the money will need to produce a bank statement showing where the money is coming from. (If the account has a lot of recent deposits, the underwriter may ask questions). Next, the recipient has to show the money going into their account. Proof of deposit will be asked for. The bank will provide a form that the donor will have to fill out along with the recipient. Keep in mind the donor has to be a relative of the applicant.
Credit reports and scores are more important today than ever before. If you know you are going to be in the market for a new mortgage in the next several months, pull a credit report. If there are problems, it gives one time to correct them.
It is also important to have enough lines of credit to qualify for a mortgage in today’s market. Three lines of credit used for at least twelve months are required. Even if you don’t believe in credit cards, maintain at least a few and charge a few items and pay them off each month. This will help satisfy the credit requirements.
Knowledge is power and will help make the process a little easier to handle.
Bill Starrels is a mortgage loan officer who lives in Georgetown. Bill specializes in purchase and refinances. He can be reached at 703 625 7355 or Bill.Starrels@gmail.com.