By Dian Hymer
Applying for a loan can be tedious. Lenders require a seemingly endless amount of documentation. The key to getting your loan approved on time is to provide as much of the essential documentation as quickly as possible.
Most lenders want copies of W-2s for the last 2 years and copies of pay check stubs for the last 30 days. They'll also want your employment history for the past 2 years, and an explanation in writing for any gaps in employment.
Self-employed individuals will need to supply complete copies of their federal tax returns for the last 2 years along with a year-to-date profit and loss statement and a current balance sheet. If you are incorporated, or have partnership income, you will need to supply copies of corporate, or partnership tax returns for the last 2 years. You'll also need to provide rental or lease agreements and mortgage statements for any rental properties that you own.
As well as verifying your income, the lender will need to verify the source of the funds you need to close (down payment and closing costs) and your debts. Compile 3 months worth of statements for all checking, savings, IRA, stock brokerage, money market, and other asset accounts, including addresses, account numbers and balances.
The lender wants to know not only where your money is, but how long it has been there, and where it came from. If your parents are giving you part of your down payment money, they'll also have to provide a gift letter which stipulates that the money doesn't have to be repaid. If you are selling, or have sold, a home in order to buy another one, the lender will want a copy of the final closing statement (called a HUD-1) from the sale of that property.
After you have completed a loan application, and assembled the necessary documentation, your loan originator (loan agent or mortgage broker) will submit the package, along with the property appraisal and your credit report, to the underwriting department. The underwriter reviews the documents in order to determine the level of risk involved in approving the loan.
First Time Tip: In order to strengthen your chances of a speedy loan approval, be completely candid with your loan originator about any aspect of your financial history that might be questionable. If your credit was shaky at some time in the past, this should be dealt with up-front.
When you apply for a mortgage, a residential mortgage credit report (RMCR) is ordered which costs about $50-60 and takes one or two days to obtain. This is a far more in-depth report than the simple $20 in-file credit report.
Your loan originator should review the RMCR with you when it comes in to see if there are any surprises. Often credit blemishes can be fixed if you know about them in advance and you work with your loan originator to clear then up.
An experienced loan originator can take a lot of the hassle out of the loan approval process. Sometimes the difference between loan approval and denial depends on how the borrower's financial documentation is assembled or packaged for the lender. A savvy loan originator will be able to assess your financial situation and know what kinds of documentation you will need to provide so the loan can be approved promptly.
The Closing: With experience, loan originators learn how to anticipate underwriters' objections to a borrower's package. They'll work with a prospective borrower to remove any objectionable items before the package is submitted to underwriting for approval.
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