Documentation for your real estate loan.

I have written articles referring to the new underwriting and loan qualification guidelines in the past, however, with the housing crises in the state they are in now, real estate loans harder to find and qualify for, you need to understand the documentation lenders will require so you can insure your loan is expedited and funded. Not all lenders are gong to require the same information, but as a general rule, if the loan is going to be sold to FANNIE MAY (FNMA). Most lenders sell or intend to sell the mortgages they make to FNMA or FREDDIE MAC (FHLMC) then the loan documentation will the same.

Lenders are making it more difficult, for some borrowers; to qualify for a real estate loan over what qualifying standards were a few years ago when loans were readily available and the types of loans (interest only, no qualifying, no loan document loans, and the list goes on) which contributed to the housing financial crises of today. Lenders are requiring more documentation in order to protect themselves and their investors. Now, "it's back to the old-fashioned lending and qualifying rules," With less money available, and with fewer buyers and a lot of houses for sale, lenders are requiring detailed application forms and documents detailing finances and income.

There was a time, many years ago of course, that borrower had to prove their creditworthiness in order to qualify for a real estate loan, and now, many lenders (most lenders) have reverted back to the old qualifying standards which require the borrower to provide sufficient loan documentation for the financial institution to make a decision to fund r not fund a loan.

No-documentation or low-documentation loans will be considerably harder to find. With no-doc and low-doc loans, lenders waived income documentation requirements, taking a borrowers' word for their income or not asking at all. Such "stated-income" loans are sometimes called "liars' loans," and no doubt plenty of borrowers did overstate their incomes. But stated-income loans are a godsend for self-employed people who have a good, if erratic, income or take a lot of tax deductions, creating a low net number on their income tax returns, the document lenders use to verify income.

The return to traditional loan requirements includes ending the practice of removing taxes and insurance from the payment for which a borrower qualifies.. In recent years, some lenders qualified borrowers based just on their ability to cover the monthly mortgage payment. Now, be prepared to demonstrate that you can make not just the monthly mortgage but the entire ball of wax, including taxes and insurance.

Now, let´s take a look at the documentation you should have readily available "PRIOR" to making your appointment with your bank, mortgage broker or any lender. You may not need all the information I will outline, but wouldn´t it be nice to be ready in case you do need it? There is nothing more frustrating when applying for a loan and the loan officer asks you for information you cannot find or don´t know where it is. The below information will assist you in a smoother transaction:

BORROWER'S REQUIREMENT LIST

VERIFICATION OF ALL INCOME TO INCLUDE

o Social Security income

o Retirement income

o Trust income

o Trust deed income

SOCIAL SECURITY CARD - FHA/VA ONLY

TWO MOST RECENT PAYSTUBS FROM EMPLOYMENT (both borrower and co-borrower for ALL employers) The amount of the borrower's income which may qualify for financing purposes depends upon many factors: The borrower's occupation, employment stability, opportunities for future advancement and educational background; The source and stability of certain types of non-salary income; and the adequacy of verification.

A minimum of two full years of employment preceding the mortgage application should be verified. Any employment gaps or problems noted by an employer should be explained in writing by the borrower.

If the borrower has an employment history of less than two years and was previously in school or the military, a copy of a diploma, transcript, or discharge papers should be provided to satisfy questions regarding continuity of employment. When a borrower is employed by a relative or closely held business, or when he or she is a commissioned employee, copies of complete signed tax returns for the most recent two-year period is required.

THREE MOST RECENT BANK STATEMENTS (all accounts, all pages. Savings, checking, stocks, bonds, CD, retirement accounts Form 1099-R)

LAST TWO YEARS W-2'S Some lenders require 3 years W-2´s (From all employers), 1040'S AND/OR 1099's. Commissions, part time income, overtime, and bonuses must be verified by the employer for a minimum of two years, and should be expected to continue. If income from those sources exceeds 25% of qualifying income, signed copies of complete tax returns and w-2 forms for the most recent two years filed, (1099 forms if on commissions only) plus current pay stubs, are required. Since the income may be subject to fluctuation from year to year, the amount, which may be used to qualify a borrower, is developed from the average of the most recent two-year earnings. (Some lenders will average the last three years if the borrower is strictly on commissions).

Dividends, interest and other investment income can be used to qualify if properly documented, received for the last two years and expect to continue. Photocopies of signed tax returns and account statements from banks, brokers, etc., may be used to verify this income and the underlying income producing assets.

LAST 3 YEARS FEDERAL AND STATE TAX RETURNS

Y-T-D PROFIT & LOSS STATEMENT - SELF EMPLOYED ONLY

The self-employed borrower must provide signed copies of tax returns filed for the most recent two-year period. Copies of canceled checks for tax payments and a certification from the preparer of the tax returns may also be required. (For loan to value in excess of 80%). If an individual has filed an extension request for the most recent tax year, a copy of the extension request and copies of related canceled checks submitted to the Internal Revenue Service should be provided.

AWARD LETTER - Social Security or Retirement (FORM SSA- 1099)

RENTAL/LEASE AGREEMENTS For all investment property, rental income must be documented with a lease agreement, signed copies of complete tax returns for the most recent two years filed, and, where available, an operating income statement (E.G. FNMA form 216 or equivalent). Qualifying income from investment property is determined by deducting from gross rental income an allowance (not less than 25%) for vacancy, rental commission, management fees and other expenses (unless vacancy can show for a two year period, zero vacancy, no management fees, etc. than the 25% factor may be waived). Monthly debt service, principal, interest, taxes, insurance and any condominium fees should be subtracted from qualifying income. If the resulting cash flow is positive, it is included as income; if negative, it is included in obligations.

NOTES DUE YOU - FULL DOCUMENTATION The borrower must have proof he originally made the loan and proof it is being repaid. Need copy of notes due, copy of cancelled checks, or copy of bank deposits showing continual deposits equal to the amount agreed upon in the original note.

DIVORCE PAPERS (all pages) Why lenders want to know the details of your divorce is because everything can change after the divorce and these changes determine when and how they collect on the loans and mortgages.

The lender requires the final decree then signed by the judge to validate information on the original loan application. This may require that the property be sold as a part of the division of assets. Lenders do not want to lend money to properties that will soon go on the market after the divorce because they do not make money on the property until several months after the loan closes. Did you have to purchase the home from your ex-spouse? Now if both spouses are on the property loan, but one will keep the property after the divorce is final, then the person leaving the property would sign a quit claim releasing any ownership interest.

The details listed below are items lenders want to know:

1. Alimony and child support: One spouse may be paying alimony or child support. This can affect monthly debts for the spouse paying and may determine how much they can afford to pay on the loan.

2. Division of Assets: Most divorce settlements require a division of assets such as a savings account. If a lender requires reserves or available cash funds to apply for the loan, this may actually affect qualifying for a loan.

BANKRUPTCY PAPERS (including discharge and list of creditors)

Mortgage lenders often have different requirements for proof when financing a home. You should have the complete bankruptcy paperwork including the "schedules and discharge". Your case may have objections, reaffirmation agreements, and amended schedules. Your lender will be able to advise you as to their preferences and requirements.

CLOSING STATEMENT FROM SALE OF PREVIOUS REAL ESTATE

The document detailing the fees, commissions, insurance, etcetera.

LANDLORD NAME & ADDRESS/MORTGAGE COUPONS (Usually lenders require 3 years residency verification, make sure to have information available)

INFORMATTION RQUIRED FOR VA LOANS

a) Statement of Service (Active Duty)

b) DD214, or discharge from WW! Or WW2 with active duty information. The tighter credit policies also extend to the Streamline Refinance program, which allows borrowers with V.A. loans to refinance into another V.A. loan with very little paperwork and, until recently, no appraisal.

Borrowers who qualify must prove 24 months of continuous active military duty, and cannot have experienced a dishonorable discharge.

c) Certificate of Eligibility, if you received it.

d) Proof of VA Disability. (This will waive VA funding fee).

e) Original LES (Leave & Earnings Statement-Pay stub)

f) Request for VA Eligibility form (Complete & Signed)

REFINANCING

Copy of Trust Deed & other information on your current mortgage, plus all information indicated above unless a FHA or VA streamline refinance.

12 months cancelled checks on all mortgages

Copy of mortgage payment coupon if loan is for a refinance

Copy of mortgage note if refinancing

Copy of fire insurance policy

NEW PURCHASE

a) Copy of Offer & Acceptance

b) Copy of earnest money deposit & cancelled check

ORIGINALS OF THE FOLLOWING:

REASON FOR REFINANCING/CASH OUT

CREDIT EXPLANATION (Derogatory Credit ofr Inquiries)

For any deficiencies in the borrowers debt repayment history, satisfactory documentation must be provided stating cause(s) of the credit problem(s) and corrective action(s) taken. Any significant debts not disclosed in the loan application (but listed in the credit report) should also be satisfactorily explained and documented.

CHILD CARE LETTER (If you are paying child cars expenses, or, if a relative is watching children and you are NOT paying expenses, a letter stating such is required so-as an expense is not added to reduce your debt ratio)

COMMUTE LETTER (If employer reimburses for gas expense, or; If purchase is a second home and traveling exceeds 50+ miles one way per day)

MOTIVATION LETTER (Why purchase or refinance is important to the borrower and the purpose)

GIFT LETTER Gifts for part or all the down payment are acceptable if the donor is an immediate family member of the borrower, or can show evidence that the donor will become an immediate family member within a reasonable time frame. The gift must be evidenced by a letter that is signed by the donor, specifying the dollar amount of the gift, the date the funds were transmitted, and the donor's name, address, and relationship to the borrower(s). The donor must include a statement that no repayment of the gift is expected. A notarized affidavit may be required. The donor must verify with the gift letter that funds are available that equal the amount stated on the gift letter. This verification may be in the form of the following: Automatic Teller Machine receipt dated the same date as the gift letter that shows the donor has funds available equal to the amount stated in the gift letter. A letter from a recognized bank that indicates funds are available by the donor that equal the amount stated in the gift letter, signed by a bank officer.

RELATIONSHIP LETTER FOR GIFT LETTER (Family relationship giving the gift, mother, brother, father, uncle, aunt, etcetera. In some cases, underwriters will allow gifts to the borrower from a non-relative such as a friend, check with your lender)

LAPSE OF TIME IN EMPLOYMENT LETTER

Any employment gaps or problems noted by an employer should be explained in writing by the borrower.

LETTER OF PROOF FROM EMPLOYER WHEN REDUCTION OF HOURS AFFECTS GROSS INCOME, LETTER SHOULD INDICAE, IF POSSIBLE, WHEN REINSTATEMENT OF FULL TIME STATUS WILL BE AVAILABLE.

IF AUTOMOBILE IS 5 YEARS OLD OR LESS AND PAID IN FULL, Copy of pink slip of autos owned indicating autos are paid in full.

LIST OF ALL YOUR PERSONAL ASSETS FOR LOAN APPLICATION

Bank account´s with addresses, account numbers, balances.

Credit card names and addresses with account numbers and balances.

401-K with investor address, account number and address.

Stock information including stock value (letter from stock broker or firm will usually suffice to confirm amount of stock owned and value of stock).

IRA information including source, amount of IRA.

Automobiles owned, include lender, year of vehicles, value, balance owed.

Copies of pink slip of autos owned indicating autos are paid in full (see above).

Copies of rental agreements for any rental property (see above).

Copies of any trust deed or other notes receivable with income information (see above).

Landlord rental/lease information including name of landlord, address and amount of current rent/lease payments.

Letter of explanation if there are any recent increases in the bank accounts.

Sources of closings funds such as gifts, sale of assets, and stock liquidation must be verified with a "paper trail". The source of the funds (gift letter and copy of check) and the receipt of funds (copy of deposit slip and verified new balance) must be documented.

If you have a new bank account, letter of explanation as to why you closed old account and opened new account, and previous bank statement to verify amounts are the same as when you closed out that account and new account was opened.

Letter of explanation if you are a young borrower with large accumulation of unsubstantiated assets.

If bank balance, down payment or other financing is from inheritance, copy of probate, will, or other documentation to substantiate inheritance.

It is important that the lender receive these items as soon as possible, so that your loan package will be expedited.