by Jammer
posted June 7, 2008
 Jammer |
We plan our lives around work hours, school schedules, sports, summer vacations, Riverbend, holidays, reunions, concerts, retirement, “deadlines and commitments, what to leave in and what to leave out” (Bob Seger said so)!
Yet, when it comes to buying a home or wanting to re-finance your current home, well, we don't plan to deal with the paperwork! That's why the process of applying, getting approved and closing that transaction becomes so frustrating to so many consumers (and mortgage types as well)!
There IS a method to the madness...something I'm calling “Paper Art”. Now if you don't already have a personal “system” in place, it's a good idea to get a jump start on the process and the frustration levels will be much less painful.
In today's times, underwriters at the various lenders are scrutinizing to the fullest extreme what we look like on paper. You've seen the term “risk factor” used regularly in this column, but it can't be stated enough that the more complete a scenario presented to the lender, the easier it becomes for someone sitting in an office far, far away to see the big picture!
I don't subscribe to the idea that we got up today, and made out a “to do list” that included yard sales, Walmart, do the laundry, buy a house and cook dinner later. We think about buying a house for a while and, in many cases, start saving for a down payment. But we don't get the rest of our paperwork in order at the same time. Those homeowners who are interested in re-financing don't fare much better either.
So, consider the following “laundry list” as “helpful hints” to guide you, keep frustration levels to a minimum and can expedite your transaction in the same breath!
GET YOUR CREDIT REPORT...7 in 10 reports are not updated or accurate so if any accounts need addressing, this could involve the most time. Your 3 credit bureau scores are a major factor if you can buy, or how much you will be allowed to borrow, and what type program and interest rate you can qualify for.
BANK/CREDIT UNION ACCOUNT STATEMENTS...typically you will need to provide the most current 2 months of complete statements on each and every account you have, or share, if there's a co-borrower involved. That means every page of each statement. I know what you're thinking. That first page of the statement is a “summary page” and provides all information so “why do I need all pages?”
Most loan programs require “seasoning” and “sourcing” of downpayment and closing costs monies. Underwriters want to see that you've not borrowed money to drop in your account just to make it look good to buy that house. Or if you do borrow, they will want to include it in your monthly “Debt-to-Income” ratio to be sure you are not over-extending yourself and too big a risk.
Lenders don't care about your personal business but they DO care how you came into that money! So, seasoning usually requires at least 2 months paper trail, and the sourcing is how you came into that money. It's allowable to have gift money (usually from a relative), use tax return refunds, inheritances, or even borrow money from a 401K or financial institution (see above) but all of it must be documented thoroughly. The balances total of all liquid type account(s) must show that after the transaction is complete, you have at least 2 prospective total monthly mortgage payments available if needed.
INCOME DOCUMENTATION...you will need to provide a current month of paystubs no matter if you get paid weekly, bi-weekly or twice a month. No exceptions! Typically, you will also need the last 2 years of W-2's from each and every workplace. If you are self-employed, 2 years of IRS tax returns are “in play”. One possible way around the tax returns would be 24 months of complete bank statements. Remember, it's up to the consumer to prove true income. If you on SSI or Disability income your yearly awards letter is required.
ASSETS...you may have a 401K, retirement accounts or pensions, bank CD's, stock portfolio(s), trust funds, or own other real estate that you can verify equity, or whole life insurance policies...any account that you get a yearly or quarterly statement must be provided if you list it on your application. And, trust me, you WANT all of everything listed!
RENT CHECKS...if you are renting prior to buying a home, keep all your canceled checks or bank statements with photocopied checks for the most current 12 months! Some loan programs will allow a reputable management company to verify your rent in lieu of checks...but DO NOT, I repeat, DO NOT use cash or money orders for rent payment. If your landlord is an individual or couple and they don't allow checks, remind them that this is the 21st century and doing business with a handshake full of cash went out about the time The Lawrence Welk Show went off the air...If you dont' keep up with the 12 months, you will end up going to your institution and paying for old statement copies!
LEASE TO PURCHASE ...will require the contract you agreed to at the time you began renting to own...and your last 12 rent checks. This is one of the best ways to get a mortgage IF you qualify with credit, job and income verifications because this transaction can be treated like a”re-financing” mortgage rather than a purchase! Those rent checks paid timely for a year carry the same weight as if you were paying the lender directly. By the way, if you lease to own, you can also pay the mortgage of the homeowner directly (for them) if they still watch those Lawrence Welk re-runs! The current appraisal value of the home, your agreed upon price and how you qualify is what dictates this type of transaction.
TIP OF THE DAY: Keep all your paper trail in a file or folder at arm's reach and continue to update the paystubs, bank statements or anything else that is updated so you are as “current” as possible when you're ready to sign a purchase contract or re-finance! Then call me!
(Jammer is a managing senior loan officer for American First Mortgage LLC, and can be reached at 423 894-8388 x239 or via email:
chattjammer@yahoo.com)
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