When it comes to getting your mortgage loan approved, think of the bank or lender’s underwriter as the key gatekeeper.
Charged with the task of reviewing the entire file of documents from the loan process real estate transaction, underwriters basically vet borrowers, making sure they meet all mandated guidelines and criteria and clearing the way for the lender to approve the loan. With hundreds of thousands of dollars on the line, that’s a sizable and serious task, so underwriters request certain documents to back up the information presented in the loan application.
In fact, providing the correct documentation for underwriters speeds and smooths the mortgage application process, with fewer conditions, less delays, and the most efficient no-hassle closing.
So today, we’re going to go inside the mind of an underwriter to find out what they really want – and why!
Here is a list of those documents underwriters need to see and scrutinize:
W-2 forms from the previous two years.
The easiest way for lenders to get a snap shot of your income – or ability to repay the loan – is by delving into your IRS Form W2 wage and tax statements. Guidelines usually call for the most recent W-2s, but they often ask for the last two previous years.
Tip: If you’re applying toward the end of the calendar year or early in a new year, be prepared to update the underwriter with the newest W-2 during the process.
Profit and loss statements or 1099 forms.
If you own a business, are self-employed, or most of your income comes in the form of commission, your W-2s may not reflect the true level of your earnings. Instead, the underwriter will want you to submit a profit and loss statement for the current year, as well as an IRS Form 1099 from the previous year to disclose your income.
Most recent paycheck stubs.
The underwriter needs to ensure that you still are employed and earning the same level of income (or higher) that was listed on your W-2s, so they’ll ask for at one month of verified income by collecting paycheck stubs.
Tip: What can you give the underwriter if you are paid electronically, and therefore don’t receive pay stubs? Most employers allow you to access their internal company website, where you can print out a detailed record of your pay.
Most recent federal tax return.
Just when you thought you were done with tax documents, you’ll be required to submit your most recent full tax return, including all pages and schedules. The underwriter will scrutinize it to make sure it matches up with the information on you W-2s, and there are no red flags. Additionally, you’ll have to sign IRS Form 4506-T, which gives the mortgage lender access to a copy of your tax return from the IRS, cross-referencing again.
A complete list of your debts.
Once they’ve verified exactly how much you earn, underwriters will carefully examine each and one of your debts. In fact, monthly payments from credit cards, student loans, installment loans, car loans child support payments, and any other mortgages will be factored in. Once the monthly debt payments and obligations have been tallied, we’ll calculate the Debt-to-Income Ratio, the percentage comparison of a borrower’s monthly net income versus total payments.
Credit report.
Just about all of the information about a borrower’s debts can be gleaned from his or her credit report. Credit reports will also give the underwriter the borrower’s FICO score, the measure of credit rating based on their past and current financial responsibility and use of debt. Having a good credit score is a huge factor in being approved for a loan – and getting a great interest rate.
Tip: Underwriters will also check a credit report for missed payments, accounts in collections, bankruptcies, and other civil judgments like child support or alimony payments.
List of assets.
It’s crucial that you make enough income to demonstrate that you’ll be able to comfortably make monthly payments on the new mortgage loan, but underwriters will also value a borrower’s assets. By looking at bank statements, mutual fund statements, brokerage statements, real estate and automobile titles, and records of other investments or assets, including other real estate owned, they underwriter’s mind will be eased that there’s a buffer in case of a job loss or other crisis that clips the borrower’s income.
Tip: Lenders will also want to see where the money for the down payment (in a real estate purchase) and closing costs are coming from.
Proof of rent or mortgage payments.
Underwriters want to know where you’ve been living up until now and see a flawless history of paying your rent or mortgage on time. Renters will be asked to provide 12 months of canceled rent checks to their landlord, as well as a bank statement showing the payments and a lease agreement. Current homeowners probably will be asked for canceled checks and bank statements showing that the mortgage was paid on time.
Tip: Always provide every page of every document in a series, like pages 7 of 7, etc. Make clean and legible copies and never use White Out, write on, or alter documents in any way. Stay organized and expect the underwriter to ask for updated documents if the real estate transaction or refinance goes longer than 30 days.