New Standards For Home Loan Approval Require The Following Documentation

New Standards For Home Loan Approval Require The Following Documentation

Buying a home can be easy if you get a government insured mortgage. In order to receive fast loan approval, you need to be prepared.Stated income loans are the main reason why the global economy almost failed. Many buyers applied for home loans not knowing or fully understanding the terms of the mortgage. These borrowers were shocked to find out that their home loans were adjustable rate and/or adjustable payment and many would soon discover that they were unable to afford their mortgage payment. As a result of the stated income financial meltdown, loan qualifications have returned to their pre-1999 requirements. To become approved for your home loan, you will need to provide documentation. In the following paragraphs, we will examine what is needed to apply for a home loan.1. Recent Pay Stubs for the last 30 days2. Bank Statements for the last 2 months3. Asset statements such as 401k, IRA, TSP accounts, etc (if applicable) 4. W2's or tax returns for the last 2 years 5. Proof of rent payments for the last 12 months6. Award letter for disability, child support, alimony, or Social Security income (if applicable) 7. 2 forms of ID - e.g. drivers license and Social Security card8. Tri-merge Credit reportWhy is all this paperwork required? Paystubs will show proof of income (based on year to date information). Lenders want to see job stability. Loaning money to borrowers without job stability will increase default rates and further increase foreclosures. This is a bad thing when the economy is rebounding. Paystubs will also show the lender that the borrower can afford to make the mortgage payments. Many lenders are facing a litany of lawsuits as a result of loaning money based on the aforementioned "stated income loans". Paystubs will be used in conjunction with the W2's or tax returns to average out the borrower's income for at least the last 2 years. Bank and asset statements show the borrowers spending and savings habits. As a requirement for loaning money, lenders want to see some type of financial stability. Bank statements that show the buyer is overdrawn on a regular basis will reflect financial instability. In addition to this, bank statements will show what debts the borrower pays on a regular basis. Furthermore, bank statements will reflect any income not based on a paycheck or employer employee relationship. Many lenders will ask for canceled rent checks or 12 months of similar proof of rent. The concept is to check and make sure the borrower will not have a major change with an increase in payment. If a borrower is accustomed to paying $300 per month in rent and they will begin to pay $1,500 in mortgage payments, they may not be able to handle the adjustment as their standard of living will suddenly be changed. A slight increase is normal and expected. However if the increase is beyond a reasonable adjustment, the lender may deny the loan. Award letter for disability, alimony, child support and/or Social Security (if applicable) is another form of income verification. Many borrowers who receive these types of income do not realize that it can be counted to apply for a mortgage. Any proof of income will be considered when calculating ability to repay the loan and maintain an adequate standard of living.As part of the Patriot Act, 2 forms of ID are required when obtaining a loan or conducting any other major financial transaction. The purpose is to combat terrorism, prevent identity theft, and help the government track financial transactions. Finally a true and factual, tri-merge mortgage credit report is also required. Each lender will require that they pull their own internal credit report. The purpose of this is to prevent third party fraud. The reason for the mortgage credit report is to make sure that the buyer can afford to pay the home loan and their other debts. Also the credit report will show how timely the borrower pays their bills. Prior to funding the loan, the lender will pull another credit report. The reason for this is to make sure that the borrower has not recently applied for additional debt. The addition of new debt can adversely impact the borrower's ability to repay their mortgage obligation.This list is not conclusive and each loan may require additional paperwork. This breakdown is designed to show the basic paperwork requirements (and the reason for each) to obtain Govenrment insured home loan approval.

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