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 no 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 to make sure they are legit pursuant to anti-money laundering laws. Also, they want to make sure these funds 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. You will be asked to provide 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 see if you obtained any credit that does 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. 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 you have been making money over a period of years.
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 it, follow their rules – provide it, don’t fight it.
Copyright © 2019 Counsel Mortgage Group®, LLC.