Homeowners who have not taken out a mortgage in a few years are often astonished at the amount of paperwork they’ll need in the mortgage loan process. If you have not refinanced in the last five years, here’s what to get up to speed on…
Paperwork to Compile
Scrounging up supporting documentation is the least favorite thing to complete, but is required in you being granted a home mortgage.
If you’re W-2 employee expect to provide the following items:
- two years most recent federal income tax returns
- two years most recent W-2s
- most recent 30 day pay stubs
- bank statements/asset statements for the most recent last 60 days
- copy of your current mortgage statement
If you are self-employed expect the following:
- two years most recent federal income tax returns
- year-to-date profit and loss statement
- bank statements/asset for the most recent last 60 days
- copy of your current mortgage statement
This is the minimum documentation your bank, mortgage lender or mortgage broker will need before they begin the unraveling of your finances. Make no mistake, getting a mortgage these days, is a documentation heavy process and is necessary to meet federal ability to repay requirements (ATR).
What Happens In Mortgage Underwriting
The mortgage loan process involves creating, documenting and structuring loan package, and ultimately presenting the file to a decision-maker who ultimately will approve the loan, deny the loan or suspend the loan. Loans with obstacles are generally not denied, but are rather suspended with an exact reason such as the debt to income ratio being too high for example, a previous lost home to a bank or a slew of other possibilities. A suspended loan is simply a need for more documentation or clarity to specific problem. If the problem can be corrected, the loan can still move forward. Here is the loan flow:
Loan Package Submitted To Underwriting
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Loan Approved With Conditions
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Conditions Come In From Borrower & Resubmitted Back to Underwriting
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More Conditions Added or Loan Is Final Approved
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Final Approval/ Clear to Close
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Docs Ordered
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Sign Docs
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Fund & Record
Once your lender submits your loan to underwriting, prior to doc conditions are created. These prior to doc conditions are generally more administrative paperwork needed from the borrower in order to attain final loan approval i.e. the green light for closing. These prior to doc conditions might mean providing additional pay-stubs, providing additional bank statements, providing a profit and loss statement showing the income consistent with the tax returns, or addressing questions underwriting might have regarding the financial documentation you presented. Think of these conditions as the final missing gaps of clarity needed to complete your loan review.
Where Challenges May Arise
The most difficult concept in home lending is documentation submitted to underwriting, can create more conditions, more questions and further needs to provide more documentation. Until the condition information is deemed acceptable by the loan underwriter, the requests to you for more information can be continual.
A good mortgage lender will perform their due diligence in the originating of your mortgage. This includes thoroughly reviewing any documentation supplied by the consumer before it goes in front of the eyes of the decision-maker, in an effort to make sure the information supplied fully satisfies each condition. Be informed. Loan officers are not underwriters. Loan officers, loan processors and operational support do not make credit decision of behalf of the lender. The final decision maker is the underwriter, always was, always will be. A good rule of thumb is to work with loan professional that either has underwriting experience or can demonstrate their specific knowledge in underwriting guidelines.
Working with a skilled mortgage originator, can greatly help mitigate the back-and-forth communication consumers may find difficult or annoying when applying for mortgage credit. The rationale consumers align themselves with “All I want to do is refinance my house and save $300 per month and get out of PMI and I have to go through the rigmarole of back-and-forth communication”, this while accurate, it can be justified. In almost every instance, its worth providing the documentation and going through the conditions with your banker in order to financially benefit. A onetime supply of documentation and questioning, in exchange for a long-term financial benefit, is what it may bold down to.
The homeowners who find the mortgage process daunting tend to be the ones who have not refinanced in years; while their last refinance experience was likely simple and quick. The old concept that working with your current bank or current lender is somehow going to be easier generally is also not the case either. Don’t be fooled. Banks want your business, especially the bank in danger of losing your servicing i.e. your payment rights when you refinance them away. Lending is for the most part, is a level playing field, loan providers want the same supporting documentation, and your current servicer does not save this information. Additionally, no mortgage company has a monopoly on the market, although some banks my offer expanded credit criteria such as needing less equity for example, but at the cost of either more income, less debt or perhaps an ultra-high credit score.
Mortgage Tip: the more organized you are will be in direct proportion to the amount of paperwork/questions needed in the processing of your refinance. Make sure to provide all financial documentation and explain all details to your lender so they can best properly structure your loan with the best possible combination of rate, costs and benefits.
Looking to refinance your home? Begin by receiving a free mortgage rate quote today!
