If you read the previous posts on property and underwriting you are nearly at the “There will be NO surprises!” stage of applying for a mortgage. But to ensure you’re seeing the same nude photo of yourself that your mortgage lender is inspecting, let’s review the application/approval process and the related documentation required.
At its best, either of these tools tells you quickly up front how much you can afford to spend on a house and information about different mortgage types available to you (fixed versus adjustable versus FHA versus VA versus balloon versus interest only versus … well, things get hairy as the list continues.) However, as some unscrupulous among us used these tools erroneously, there are now government guidelines regarding what can and cannot be disclosed, promised, etc. prior to a full mortgage application. But ask your mortgage expert what s/he offers anyway, as this step of the process usually is a big time saver and comfort generator.
Once you define and locate your dream home and negotiate the best price, you’ll need a sales contract. That serves as a promise you will buy the house – if certain conditions are met. These conditions may relate to you selling a previous home or obtaining an acceptable property inspection or getting coop board approval, like Roberta Flack, who Killed it Softly at the Dakota and also lives there. You’ll normally have your Attorney review the contract to ensure you are, in fact,not moving into a commune. Things operate differently in some states.
The Approval Process
Again, depending on your state and your chosen mortgage lender, you will next meet or speak with a mortgage professional (or complete an application online). The mortgage application is then “disclosed” to you within three business days. You’ll receive two sets of documents which delineate the predicted costs and are known as “Know Before You Owe".
When they asked George Washington for his ID, he just took out a quarter. - Stephen Wright.
You’re not ‘the’ George Washington. Therefore, when you apply for your mortgage loan, you will need to supply paperwork you filed in the musty attic, and names and addresses you forgot years ago. Here is a list of that documentation and information you will need to provide to the lender. Having this compiled in advance will speed the process and make your lender a brand new friend of yours! NOTE: depending on the specific terms of your loan and the property you buy, there may be additional items needed. Oh quit complaining – would YOU lend someone this much money without knowing all their financial data?? Would you take a blind date to a nudist colony without ever seeing a picture of or knowing anything about the person in advance? (Wait, do nudist colonies still exist or is there a law against them now?) Here goes and this is true for all people who will be on the mortgage:
The purchase contract -- all pages and addendums with signatures, and don’t forge those signatures. Besides being illegal, you’re handwriting is horrible.
Social Security Number and your full address(es) for the past two years
Most recent pay stub showing year-to-date earnings (and save new ones; you may be asked to supply them later)
W-2’s for the past two years and a recent paystub showing YTD earnings (and not the W-2s you make online yourself, the real ones please – even if they are crumbled and have coffee stains all over)
Names, addresses and telephone numbers of your employers for the past two years and the HR or other contact there who can verify your employment (no, not your best work buddy Harvey!)
Most Recent 2 Years Federal Tax Returns (All Schedules) if you are self-employed or have income that is not shown on a W-2, provide x If you are the owner of a business or part of a partnership, also provide form 1065 or 1120S, and a YTD P&L. Ask your mortgage expert exactly what you need to supply, in advance, as corporate returns and audited financials may be required. Take a chill; if you’re self-employed, you’re used to dealing with all this stuff already!
Loan and Credit Card Account Information including the name(s) of the borrower, name and address of the institution, account number, monthly payments and current balances
Two months of your most recent statements (all pages printed) for deposit accounts, stocks, bonds, retirement, etc. (some lenders require three months and some lenders will get these for you but it will take WAY longer and be associated with much attitude, trust me on that)
A check for all applicable application fees – ask for this amount before you apply. Don’t bring cash and don’t expect your lender to accept Bitcoin or Apple Pay – yet.
Your ID – e.g. your driver’s license (ask what else is acceptable if you hitchhike only.) If you apply for an FHA or VA loan, you may need to provide your passport, social security card, Certificate of Eligibility, DD214, etc. --- ask in advance. Yes, veterans DO get benefits in terms of buying a house! Yippee!
Proof of paying rent on time, if applicable. That includes your landlord’s name and contact information. If that was mommy and daddy, Houston, we may have a problem.
A copy of the check you used to pay Earnest Money. No one needs the check you used when you were less than earnest.
A copy of a fully executed gift letter, if applicable, and a pint of blood from the related person who gave it to you; prepare donors in advance.
If you own other property, verify the payments (including taxes and insurance) and explain what will happen with the property after closing (e. nothing, sell it, rent it, donate it to the homeless, ...)
Details on child support/alimony – paid and/or received.
The name and contact information for your insurance agent (for this property) and closing agent (Attorney, Title Company, etc.)
HOA information or your favorite member of the coop board, if applicable. (joking about that last part!)
Other Items Your Lender Will Order
After you submit your loan, and while your three-day disclosures are being prepared or sent, your lender will order a property appraisal. Let’s be clear here. The appraisal, yes, protects you. But it also protects the lender. The lender wants to be sure the home you are buying is not worth significantly less than or more than you paid for it. This is mainly determined by looking at “comps” or comparable recent sales of homes that are similar to yours.
My wealthy friend owns a beach house that she purchased for $3,000,000 at “the height of the market” many years ago. Last year, she attempted to refinance her home loan. But the appraisal showed via “comps” the house was now worth only $1.5 million -- yikes. The good news here is that she recently told me 2 similar homes just sold nearby for over $2 million, so her value, as a result, is rising up again. Yes, she owns a Phoenix beach house but in New York, not Arizona.
If you’re obtaining a “renovation” or rehab loan, the appraisal process is slightly different in that it estimates the value the home will be after you complete repairs and renovations. Get more details from your lender about draws, due dates, etc.
The busy bees at your mortgage lending company will also obtain your credit report. Go back to the previous enthralling article for more on that.
Your lender is also required to determine whether or not the house you buy is in a flood zone. If it is, you will be required to buy flood insurance. When I bought the house where I currently live, the lender told me I needed flood insurance. That struck me as quite odd since my house is on top of a giant hill in a rather high mountain range. Hmmmm. Upon further inspection, it just so happens we have a stream behind our house (that was covered by much snow and trees when we bought the house. And, yes, many years later, the stupid creek flooded).
When your application moves through the process and all documentation has been inspected and deemed photo worthy, it will be moved to the Underwriter who will either approve your loan (YAY!), deny your loan (BOO!), make a counter offer (e.g. ask you to make a larger down payment or get a different loan type), or ask for more documentation – that stage is often called “suspense”, just to add some intrigue to the entire process. If BOO is the case, you will get that in writing with the specific reasons why, so you can pout (or choose different alternatives to get the solution).
Lately, there is much new computer software that, with your permission, eliminates many of the steps discussed and/or documentation required. But that technology is still in the early stages. George Jetson Mortgage has not yet had its Grand Opening. In the future, you may be able to choose a house, state your name, address, and SS number, etc. and sign a ‘permission slip’ for your lender to pull your financial information as well as the property data automatically and electronically from Big Brother. We’re not quite there yet, but your lender may have a working relationship with “Little Sister”, so it’s possible some parts of the approval process will be on autopilot.
But that doesn’t mean you can go into a photo booth and have a magic mirror version of yourself printed for the world. Nope, GIGO trumps Big Brother and Little Sister – garbage in = garbage out. So pay your bills, save your money, don’t buy hot pink houses (or lingerie) and achieve the American Dream of home ownership (or at least get the tax break!)
“A bank is a place that will lend you money if you can prove that you don’t need it.”
~ Bob Hope