Over the past several months I have heard stories from several Realtors, Loan Officers, and my wife (who is a Loan Processor) about clients who had their loans denied because they were un-willing to provide financial documents and verification which was requested by their lender. Not only were these people protective of their information, but they got downright hostile in many cases when asked to provide documentation showing where they got certain checks, why they withdrew certain amounts, or why they opened new credit cards in the last few months. While I can agree it can be frustrating to go through the “Inquisition” that loan underwriting has become over the last few years, let me offer some advice to anyone going through the loan process in today’s market.
1. Don’t Shoot the Messenger, Or Your Loan Processor.
Loan Processors are not much more than secretaries with a fancier title. They are given your file after your loan officer collects it, they make sure all of the “normal” needed documents are there, and if they are they pass your file to underwriting. If you hear from a loan processor requesting something, they are doing so because someone higher up in the bank (an underwriter, executive, or their loan officer) is requiring them to do so. They NEVER have the authority to change any rules or requests if you don’t like what they are asking for, so yelling at them will NEVER do you any good. It can, however, do you bad. If you scare or piss off your processor so much that they are reluctant to call you again it might delay your file getting completed, which can delay your closing. Processors are on your side…get them what you need and they will get things done so you get your loan.
2. If the IRS Doesn’t See It, It Doesn’t Count
If you make income in a way that is paid under the table and you don’t report it to the IRS your bank can’t use those funds for how much you can qualify for on your home loan. If you collect any “under the table” checks during the time your loan is in process, DON’T CASH THEM UNTIL YOU CLOSE ON YOUR LOAN, or really for 2 months before hand either. All of those checks/deposits will need to be shown as to where you got them from, why, and more. In short, it creates a major headache.
On a similar subject, if you have a ton of deductions on your taxes where it looks like you made almost nothing to get a ton of taxes back…you probably won’t qualify for your home loan either. If you made $50,000 and had $45,000 in writeoffs the bank can only count your $5000 profit towards your home. Since you can only use 38% of your post tax income towards your housing payments you would only qualify for a home that would cost $159 per month in that scenario…Have fun with that $22,000 home loan. Tons of deductions are great for getting taxes back, but really bad when it is within the last 2 years before you go to buy a home.
3. Once You Start a Loan Application, Don’t Touch ANYTHING!
When you are in the process of buying a home a lender checks your financial information twice. Once at the very beginning and once at the very end. They want to see that your financial information is pretty much exactly the same at the end as it was at the beginning, and if anything has changed, they are going to HAVE to ask you why. If you have a lot of money in stocks, bonds, IRAs, or multiple accounts, once you apply for your loan resign yourself to the fact that YOU CAN’T TOUCH THEM FOR THE NEXT 60 DAYS! If you move the money around at all they will need documentation showing the transfer and why you did it for each and every single transfer that you do. This isn’t just annoying, its time consuming and can delay a deal by days if you aren’t quick to get them what they need after they do their final checks at the end. If you are at the opposite end of the spectrum and are short on money, do yourself a favor and don’t open a new credit card, buy furnature, pay for your moving truck (and especially don’t buy a new car) until the day AFTER settlement. If the bank is requiring that you have a certain amount of money left in your account (called reserves) after closing and you spend that money prior to settlement they will deny your loan…and I have seen this happen to people at the closing table. Give yourself a few extra days to complete your move and just don’t spend any money (other than basic food and gas costs) until after closing is done!
4. Its Now The LAW!
While the bank requiring you to provide documentation of the $50 birthday check from your Aunt Mavis may seem excessive and un-necessary to you, it is required under federal guidelines that they be able to show the source of all funds that come into your account if it isn’t your regular paycheck. Homeland Security rules require the banks to do this to prevent the transfer of terrorist funds, especially for the use of purchasing US property. While we no longer have to worry about those funds coming from Osama Bin Laden (Yay!), the rules have been there since 9/11 and will be there long into the future. Even if it seems stupid, trivial, invasive, or annoying…take a deep breath and ask yourself- “Do You Want The Money?” If the answer is Yes to that question…get the bank whatever they ask for. It would take an act of congress in most cases for them to be able to make an exception for you…and I doubt your loan exception would make it out of congressional committee 😉
If it isn’t required by Homeland Security, than what they are asking for is probably required under the new lending and underwriting guidelines set up by FHA, Fannie Mae, and Freddie Mac. Failing to follow these guidelines can result in fines of up to $250,000…and trust me the bank won’t pay those for you no matter how big your loan is. Your business isn’t THAT valuable to pay fines that big!
I hope that these tips will give you a little insight into today’s lending world. Forward this to anyone you know who may be trying to navigate the loan process for themselves, or if anyone is thinking about it. Keep Dreaming, and remember that Loan Processor you are venting at about something she can’t control is probably someone’s wife…like mine!