By Vickie Perry
Let’s face it, some people are great at paperwork. Other people, not so much. As a home loan professional, my job consists of swimming through my client’s information. This might sound fairly straight-forward, but every client has their own set of circumstances and a story to go along with it. In this month’s article, I am going to focus on the importance of working with your lender, not challenging them, when it comes to your personal paperwork.
There are a few basic necessities required when applying for a home loan. They are: tax returns, W-2s, paycheck stubs, and bank statements. Many people think as long as they provide these items their work is done and the loan will be approved. This couldn’t be further from the truth. As a lender, we are required to decipher, and question, everything contained within the provided documentation.
To start with, bank statements play a key part in processing a client’s application. The first thing we look for are deposits that do not correspond with standard payroll deposits. If erroneous deposits are discovered, the borrower must ‘source’ those funds. To ‘source’ a deposit means to document where the money came from. A simple explanation of “I sold something to a friend” won’t work. You have to prove you had the item to sell, as well as prove the item was worth the price you sold it. Sourcing deposits is required because you are not allowed to borrow money from a friend or family member in order to purchase a home. A gift is one thing, but borrowed funds are not allowed. Additionally, we are looking to see if a borrower has more than one job or a job that wasn’t disclosed on their loan application. Most of the time having more than one job is fine, but in instances where the loan program has an income limit, a second job might disqualify a borrower from that particular loan program.
Next, we look at tax returns and W-2s. If a tax return shows $35,000 in wage income, this means there should be W-2s totaling $35,000. If the tax return shows business income such as a Partnership, etc., we are required to determine the impact, if any, the partnership might have on our borrower’s income. Does the partnership lose money each year? How will that affect our borrower’s ability to repay a mortgage? If the tax return shows income from rental properties, those properties must be declared on the loan application. More than likely, rental income will be determined from what is reported on the tax returns, not the amount your lease/rental agreement says.
Now, on to paycheck stubs. Straight-forward, right? Wrong. Do the paycheck stubs reflect over-time? Is the over-time consistent, as in, the client has been earning over-time for a minimum of 2 years. Do the paycheck stubs correspond with the amount on the W-2s? Has there been an increase/decrease in wages? An increase/decrease in hours worked. A client’s paycheck stubs paints a huge picture relating to the previous and current earnings. If something is out of the norm, plan to explain it.
I could go on and on with various examples of how to get your paperwork in order so that your loan process is smooth, but my best piece of advice would be: If your lender asks for something, provide exactly what they ask for. If you provide less than what was requested, don’t get mad when they request the same item again.
A key point to remember is the investor has the money and the investor makes the rules. Your lender does not make the rules, but they have to follow them and make sure you follow them as well. Your lender is the liaison between you and the investor. For a successful loan approval, it is up to you to work with your lender as a team. This means provide the paperwork required and be prepared to back it up with further documentation, if requested.
In the end, following your lenders instructions, and providing the requested documentation, will generally ensure a smoother process and faster approval. If ever you have questions about the paperwork process or what is needed, your local, licensed lender would be happy to answer any questions. Give them a call today to schedule an appointment.
Vickie Perry (#AK195996 / #AK167729) is Branch Manager of Residential Mortgage, LLC, in Juneau. She can be reached at (907) 789-2329. Visit her website at www.vickieperry.com.