By John R. Rapasky
Loans today require full documentation. Many times I get asked why certain documents are required. In today’s lending environment, files are scrutinized closely. The following are some items that are being requested, and the rationale for the requests.
- Unexplained deposits in your bank accounts – lenders will ask for documentation to support deposits in your bank accounts where there is not any explanation for the deposit. For example, some deposits appear on bank statements with simply the word(s), “Deposit” or “Counter Credit.” As such, the underwriter does not know the source of this money. The underwriter will inquire as to the source of these funds in order to make sure it will not affect their lien. For example, they may want to make sure you did not borrow any money that could potentially result in a lien on the property. They will generally request documentation relating to these deposits.
- Letter of explanation regarding inquiries on your credit report – many lenders require a letter of explanation regarding inquiries appearing on your credit report in the last 120 days. They want to make sure you have not obtained any credit that may not appear on your credit report. You will have to explain the inquiries appearing on your credit report, and, in some instances, provide documentation regarding these items.
- All pages of your bank statements, retirement account statements, investment account statements – lenders want to see all pages of your statements, even if the last page is the advertising circular, or is blank. These statements typically show the page numbers as page __ of __. Because the underwriters know the page numbers in the series, the underwriter does not know whether the last pages are advertising or blank, and will want to review them. Among other things, the underwriter reviews the bank statements for unexplained deposits (see #1 above). They want to make sure there is nothing on the bank statements that could affect their lien.
- Last two years tax returns, all pages – more lenders are requiring tax returns, especially if you are self-employed. In order to qualify, self-employed individuals must have been self-employed for at least the last two years. The income used for qualification will be the net income, after expenses. So, if you write-off all of your expenses, and don’t pay any tax, you may not qualify. Lenders want to see stability of income. They want to see that you have been making money over a period of years. Thus, when it comes to self-employed borrowers, the lenders rely on the past to predict the future, i.e. stability of income.
In sum, if you want the loan, provide the documentation. As I was told years ago, the golden rule of lending applies. He who has the gold, makes the rules. The lenders have the gold, if you want the loan, follow their rules – provide it, don’t fight it.
John Rapasky is the President of the Counsel Mortgage Group, LLC. You can learn about them at www.counselmortgage.com. Copyright © 2010 Counsel Mortgage Group®, LLC
MB# 0909580 NMLS# 178927 AZ LO# 0911590 NMLS LO# 179539