If you are considering either buying a home or refinancing your current mortgage and have not done so in several years, you may be surprised at how the process has changed. Even though most borrowers are well aware of the crisis that has occurred in recent years in the real estate and mortgage industry, many still don’t realize the extent to which documentation requirements have changed.
1st Complete a Mortgage Application
The first thing you will need to do is complete a mortgage application. The form, referred to as a Uniform Residential Loan Application – or Form 1003, has not changed much over the years.
You will need to be prepared to provide information on your residency and employment for at least the last 2 years, as well as your current liquid assets. You must also list details of any other properties you own. There are also questions to determine whether you have been a party to any foreclosures, bankruptcies, lawsuits, judgments, etc.
In the past, borrowers with excellent credit often got away with providing little to no documentation to support what was listed on the application. Now, you should expect to provide documentation to support all of the information on the application, regardless of your credit score, down payment, etc.
Our checklist for borrowers typically includes the following:
- A complete signed application with all disclosures which we will provide you.
- Pay stubs covering the most recent 30 days.
- W-2s and tax returns for the last two years – must include all pages and be signed (Business taxes and K-1 for self-employed borrowers).
- Bank statements for each account for the most recent two months – including documentation/explanation for any large deposits made (“large” varies based on income).
- Mortgage statements for existing mortgages.
- Evidence of taxes, insurance and homeowners association dues for properties owned.
- Driver’s licenses.
- A letter of explanation for each time your credit was pulled in the last 90 days indicating whether you incurred any new debt.
- When refinancing, your existing owners title policy to ensure that you get a discount on the new policy.
- When buying, a quote from the homeowners insurance company you intend to use.
- When buying, your signed contract with all addendums and seller disclosures.
While this list is often daunting to borrowers, our experience has prepared us to know what documentation we must obtain to ensure an efficient process with no last minute surprises. We immediately review all of these items and determine whether additional documentation may be requested by the underwriter. If anything is unclear or requires further explanation we will request further information.
Submission to Underwriter
Once the documentation is complete, we will submit the file to the underwriter. Typically their review is completed within 2 days. As a result there may be additional documentation requests (“conditions”), but they should be minimal. At this point you will receive an “approval with conditions”. This means that your loan has been approved, as long as the “conditions” noted are successfully cleared.
During this time we will also order the appraisal, title work, and certificate of insurance from the insurance company you have chosen. These items are then submitted for a second review.
After the second review, there should be very little left to complete. Once the underwriter has approved all of the documents you will receive a “clear to close” and should be able to close within the next few days. By following this process we typically are able to close loans in less than 30 days. In some cases, as quickly as two weeks.
Common things that will delay the loan process:
- Delays in getting signed purchase contract from the seller and/or missing addendums.
- Problems encountered during the home inspection that delay ordering the appraisal.
- Delays in getting all documentation from the borrower (borrowers going out of town).
- Problems encountered during the appraisal that must be corrected before the appraisal can be approved.
- Delays in obtaining title work and surveys from the title company.
- Problems found in either the home inspection or appraisal that delay obtaining homeowners insurance.
- Delays in having tax returns verified by the IRS which is required for all loans (this occurs frequently on applications soon after April 15th when tax returns have been recently filed).
- Discovery of information that the borrower did not disclose upfront.
Don’t Argue with Lenders
While the process can be stressful, it is important for you to trust your lender. Arguing with them about the necessity of providing requested documents is unlikely to cause them to change their mind and only causes further delays. If you don’t understand why something is being requested of you, of course you should feel free to ask your lender to explain it to you. All of their requests may not make sense to you. Most lenders are following the guidelines of Fannie Mae and Freddie Mac and the underwriters are merely doing their job to ensure that they comply with these guidelines. Don’t take it as a personal attack – the rules are the same for everyone!
A mortgage broker can help you save thousands every year by making informed decisions. And better yet, it typically doesn’t cost any more to use a mortgage broker compared to a retail lender.
So when you start the process of looking for a home, please contact us at Marimark Mortgage and let us help you through the process of buying a home.