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What paperwork you need to bring to your mortgage
Anyone who has financed or refinanced a home recently knows how complex
and document-heavy the whole financing process has become. The bad news
is that you can't avoid it. If you want financing, you've got to
produce the paperwork. The good news is that if you prepare yourself
ahead of time, organize and prepare your documentation, your mortgage
will be processed much faster than average.
This is absolutely essential in purchasing a residence, where missing or
inadequate documentation can actually cause the entire home sale to fail
if the lender's commitment is not forthcoming by the contractual "date
of financing contingency" in the purchase agreement.
Bringing everything applicable upon this list to your first mortgage
appointment is probably the most important act that you can perform to
insure a well-organized and speedy mortgage.
1.) In a home purchase, please bring your EARNEST MONEY AGREEMENT with
you.
The Earnest Money Agreement is called different things around the
country (such as Purchase and Sale Agreement, Home Purchase Contract,
etc.) but is essentially the contract for purchasing your home that you
have signed with the seller, either with or without the aid of a real
estate agent. From the point of view of the lender and the escrow agent
who will be closing the transaction, the Earnest Money clause of this
agreement is one of the most important elements of the mortgage. It
states the terms of forfeiture of your Earnest Money deposit and the
precise date that the financing contingency will occur. In most
purchase and sale agreements your Earnest Money will be returned in the
event that you are denied financing by a legitimate lender by a
specified date (thus the "date of financing contingency.")
It is truly amazing how many people sign a binding Earnest Money
Agreement with a financing contingency date hanging ominously in the
very near future (thirty days is unfortunately and unrealistically not
uncommon), and then and only then think about where and how they should
get a mortgage. This is a prescription for either disaster or, at the
least, some very bad stress headaches. The whole rationale for making
sure that you bring all necessary items to your first mortgage
appointment is this. Optimally, it is in your favor to have your "loan
package" submitted immediately for processing. This cannot happen if
the loan officer is waiting for missing pieces to show up bit by bit.
You can protect yourself to a certain extent by making sure that you get
the longest period possible between the signing of the Earnest Money
Agreement and the financing contingency. Forty-five days is good, and
longer is even better if you can negotiate it with the seller. Here's
the reason. Mortgages are so complicated these days, they have so many
moving parts that it is almost a rarity when something doesn't break
down before loan approval. Written documents must be sent out, signed
and returned on time for verification of employment and verification of
deposit for every asset that you are claiming. Credit questions must be
rectified and documented. Appraisals regularly expose hidden problems
with the residence that must be corrected immediately. And unless it is
a slow market, appraisers can sometimes take two weeks to a month and
longer to examine the property and produce a report. Ever tried to get
an ex-spouse to produce canceled checks to prove child support, like ri
ght away, pretty please. You are requiring a heck of a lot things to
happen on a deadline here, and the Time Gremlins are hovering overhead
just waiting to throw a wrench in the works.
2.) Your CURRENT & PREVIOUS ADDRESSES covering the last two years. (If
you are renting please provide names and addresses of past landlords.
If you own your home please bring names and addresses of current
mortgage companies and account numbers.)
Accurate current mortgage information is essential. Account number of
your current mortgage is pretty straightforward information to find but,
surprisingly, the correct address is not always easy to come by. This
does not apply where the bank or lender is local, but many mortgages
have been sold or are otherwise residing at a distance. Where you send
your payment may or may not necessarily be the correct address for the
loan processor to send the Verification of Mortgage to. The best thing
to do is gather every piece of paper that you have accumulated relating
to your current mortgage, stick it in a manila envelope and give it to
the loan officer to figure out. As with every other item on this list,
this is one time in your life when more paper is better than no paper.
If in doubt, bring it along.
3.) Your SOCIAL SECURITY NUMBER.
Your actual social security card(s) are not required but I think it
looks impressively organized to the mortgage underwriter who will be
ultimately looking at your file to have photocopies of these. If,
however, you are a resident alien you must bring your social security
card, green card and driver's license for the loan officer to copy.
4.) PHONE NUMBERS for work and home.
That was easy.
5.) Your current PLACE OF EMPLOYMENT and most recent paystub(s);
previous employers over the last two years.
Your paystub may or may not have your employer's address on it. Make
sure you bring the address of your employer's administrative center,
where employee records are kept (not an unrelated warehouse or dispatch
shack). The processor must have the correct address for mailing the
Verification of Employment. Just so you know, one of the questions that
your employer will be asked is, "What is the likelihood of Borrower's
continued employment?" Gulp.
How many paystubs? Two are usually required. Bring more if you have
them. If you don't ordinarily save paystubs, do so until the loan is
approved. You will be asked to produce your most recent paystub
received before approval, so hang on to these.
6.) Your MONTHLY INCOME. Any income to be used to qualify will need
proof. A verification of employment will be mailed to your employer but
you will need to bring proof of any other type of income, i.e., rental
agreements on income properties, notes receivable, real estate
contracts, child support or alimony, a copy of your most recent social
security or retirement check, etc.
Once again, bring every single piece of paper relating to anything that
produces income. You never know what's going to be important by its
omission. Let the loan officer sort it out. Following are notes on
specific income items.
rental agreements on income properties
If you haven't signed a rental agreement with the tenant of your rental
property in the last year, your loan officer will probably ask that you
do so. Printed rental agreements can be obtained from stationary stores
or from your real estate agent. Of specific interest to the lender's
underwriter is the contractual monthly rental payment and the likelihood
of its continuance.
Most Borrowers are disappointed to learn that they are not allowed to
claim the full amount of monthly rental payments as income. The
underwriter will use this formula: rent payment less mortgage payment,
less property taxes, less homeowner's insurance less a vacancy factor of
25% of rent. The last item really ticks off landlords who have received
a rent check on time every month from the same tenant for twenty years
--- but underwriters are bureaucrat wannabes, and they make no
exceptions, not even those based on reality. Be advised that this item
can occasionally cause an otherwise profitable property to show a
negative income factor that will actually reduce the sum of your other
income sources!
You may be tempted, therefore, to increase the stated rental amount on
the new rental agreement that your tenant will be signing. While a
marginal increase may not set off any alarms, a rental amount that is
dramatically higher than appropriate for that type of housing will be
viewed suspiciously by the mortgage underwriter. Remember this. Any
intentional misrepresentation on your loan application is grounds for
denying the loan.
note receivable
You may count as income any promissory note for which you are receiving
payments under the following conditions. The note income should be
claimed in the last two years income tax returns and the income must be
payable for a remaining three years. Bring a signed copy of the
promissory note to your appointment. Like alimony or child support
payments, you must prove that the payments were actually made over the
last 12 month period by deposit statements into your bank account or by
canceled checks obtainable from the payer of the note. If you are
proving payment by the latter method, get the payer of the note to
obtain canceled checks at the earliest point possible. Things like this
always take longer than they should and you don't want your loan hung up
because someone else didn't do what you asked in a timely manner.
child support and alimony
As above, you must have received child support for the previous two
years and it must continue for three more years. You must produce the
final divorce decree stating the terms of dissolution. This is the
document signed by the judge, not any of the volumes of preliminary
paper work. Proving that child support is payable by the terms of the
dissolution is just the beginning, however. You must prove that the
payments were actually made either by tracking deposits made to your
bank account or by asking the ex-spouse to produce canceled checks for
payments made (not always a pleasant inquiry but a necessary one.)
Happily, this is not usually necessary with alimony due to the fact
that, unlike child support, there should usually be an acceptable record
of receipt if you have claimed payments on your income tax returns.
If your child support or alimony is 25% or more than your total income,
the mortgage underwriter may require a signed letter from the payer
indicating a continuing intention to pay the obligation.
Social Security benefits or retirement check
Disability or retirement benefits from Social Security may be documented
with a copy of the original Award Certificate stating the nature and
particulars of the benefit. If you do not have this in your records,
you may obtain a copy by calling your nearest Social Security office.
You may also be asked to produce records of deposit from your bank or
canceled checks.
7.) Your last two years INCOME TAX RETURNS. If you are self-employed,
your last three years income tax returns, a current year-to-date profit
and loss statement and balance sheet (if available).
Income tax returns are your complete Form 1040 returns with all relevant
schedules attached. These must be signed but not necessarily originals.
Probably most people keep an unsigned penciled version after sending the
signed original to the IRS. Sign whatever true version that you have
retained for your records and bring this to your mortgage appointment.
Copies of W-4 or other year-end income documents should also be brought
along.
If you are self-employed, you must have a qualified accountant (not
necessarily a CPA, but a person doing business at least as a public
accountant) create a current year-to-date profit and loss statement and
balance sheet. This can be a time-consuming request, especially if you
are trying to obtain financing during tax season, and it is best to
start early. Many accountants vary on the format of what they call a
profit and loss statement, and it is prudent to make sure that what the
lender requires is what your accountant is going to produce.
8.) BANK ACCOUNT numbers and branch name and address. Also, current
balances.
The easiest way to do this is to bring along your last received
statements for all bank, savings and loan or credit union accounts.
They should contain all necessary information.
9.) Account numbers of all IRAs, 401K or vested company retirement
accounts and current balances.
Again, the most expedient method of obtaining all necessary information
is to bring along your most recent statement of account. It is probably
a good idea to bring along any and all paperwork that you have
accumulated regarding these items just in case there are any questions.
At the very least, you must have the account number and name and mailing
address of the institution holding the account.
10.) A list of all CURRENT DEBTS. This includes charge cards, car
loans, personal loans, mortgages, child support payments, separate
maintenance of former spouse, etc. Please include account numbers.
Account numbers are absolutely essential. Assemble and bring along
billing statements for the last-paid period for the easiest method of
ascertaining current balance and account number for each item. You may
enter this information into the Debt Summary module of QualifyR, obtain
a current total, then print this information for use by your loan
officer. For persons with extensive debt items, this kind of summary
overview can be instrumental in organizing your finances for
presentation to the mortgage underwriter that will pass judgment on your
file.
When you have received a copy of your credit report, make sure that each
item that you are currently paying corresponds exactly to the account
information contained in the credit report. Any items listed on the
credit report that you are not paying must be rectified immediately.
11.) A list of all REAL ESTATE OWNED, stating address, value, mortgage
holder, current loan amount, monthly payments, and any rental income.
A signed deed transferring ownership is a fairly irrefutable proof of
ownership. Bring this along as well as any paperwork relating to the
sale and all documents pertaining to any associated mortgages or liens
against the property. Rental agreements with tenants must be produced,
preferably signed within the last 12 month period.
12.) Name and phone number of HOMEOWNER'S INSURANCE COMPANY.
Homeowner's insurance (also called hazard insurance) is the policy that
you hold on any residence or rental property to insure against damage
or destruction. Bring all paperwork associated with homeowner's
insurance to your mortgage appointment.
If you have no current real property holdings, you must designate an
insurance agent who will write the coverage on your new home. This is
one area where rates vary widely, there's lots of competition and
shopping around can really save you some money.
14.) A financing application deposit will most likely be required at
time of application to cover the costs of appraisal, credit report,
title cancellation fee or other included costs.
Make sure that this deposit will be rebated to you as a credit to you at
closing (in other words, counted as money already paid against the
closing costs of the mortgage). If the financing for your home fails
for any reason, any unused moneys from the application deposit should be
returned to you.
Application deposits are generally around the $600 range. If the
deposit is considerably higher than the total of the costs it is
purported to pay for, you may be inviting a rip off. Make sure that the
enumerated costs equal the total deposit and get it writing that unused
moneys will be returned to you upon failure of financing.
If you want to be even more prepared before your first financing
appointment, you may want to download a FREE software program from this
forum. Go to the Software Library section and look for the listing
"Loan Officer In A Computer", listing date 12/4/94. This contains the
program, "QualifyR" --- Home Buyer's Qualification Program For
Residential Financing. (For Windows, ASP author)
Unlike other mortgage computation programs, QualifyR incorporates Fannie
Mae Guidelines in its computational structure. Perhaps most
importantly, the program computes and itemizes the Closing Costs of
financing, Monthly Income Required, Private Mortgage Insurance, and all
other variables in an actual mortgage, then displays a Financing
Estimate screen in the same format as the Good Faith Estimate that the
buyer will receive from the lender.
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