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What Paperwork Do You Need To Get A Mortgage?

One of the biggest problems with the government’s Making Home Affordable loan modification program is that a large number of borrowers are making their payments but do not provide required paperwork — and thus are unable to permanently refinance their mortgage with a new and lower rate. Because they did not provide required paperwork these borrowers have been foreclosed.

The government is now trying to stop this problem by requiring lenders to get necessary paperwork up front. This is a smart idea — and it also leads to an important point: Borrowers always want to know what paperwork they’ll need for a loan application so here’s a quick and handy list.

Consumer Debts

You plainly need a list with account numbers, current balances and required monthly payments for all debts, including but not limited to student debts, car loans, credit cards and other outstanding obligations.

Assets

You must show all assets including but not limited to savings accounts, mutual funds, stock, partnership interests, real estate and other assets.

Income

Below is the income documentation list that HUD is requiring for borrowers who are seeking to avoid foreclosure through the government’s making Home Affordable program. While the requirements below may not work for every lender, the list is an excellent start and shows what lenders are likely to require when you apply for a mortgage.

Employment Income

Copies of two recent pay stubs, not more than 90 days old at time of submission, indicating year-to-date earnings.

a. Servicers may accept pay stubs that are not consecutive if, in the business judgment of the servicer, it is evident that the borrower’s income has been accurately established.

b. When two pay stubs indicate different periodic income, servicers may use year-to-date earnings to determine the average periodic income, and account for any nonperiodic income reflected in either of the pay stubs.

c. When verifying annualized income based on the year-to-date earnings reflected on pay stubs, servicers may, in their business judgment, make adjustments when it is likely that sources of additional income (bonus, commissions, etc.) are not likely to continue.

Self-employment Income

The most recent quarterly or year-to-date profit and loss statement for each self-employed borrower. Audited financial statements are not required.

Other earned income (e.g., bonus, commission, fee, housing allowance, tips, overtime)

Reliable third party documentation describing the nature of the income (e.g. an employment contract or printouts documenting tip income).

Benefit Income (e.g., social security, disability, death benefits, pension, public assistance, adoption assistance.

Evidence of:


(i) the amount and frequency of the benefits such as letters, exhibits, a disability policy or benefits statement from the provider, and

(ii) receipt of payment, such as copies of the two most recent bank statements or deposit advices showing deposit amounts. If a benefits statement is not available, servicers may rely only on receipt of payment evidence, if it is clear that the borrower is entitlement is ongoing.

Unemployment Benefits

Evidence of the amount, frequency and duration of the benefits (usually obtained through a monetary determination letter). The unemployment income must continue for at least nine months from the date of the application. The duration of benefit eligibility — including federal and state extensions — may be evidenced by a screenshot or printout from the Department of Labor UI benefit tool, which is available at http://www.ows.doleta.gov/unemploy/ben_entitle.asp.

Rental income

Rental income is generally documented through the Schedule E –Supplemental Income and Loss, for the most recent tax year.

a. When Schedule E is not available to document rental income because the property was not previously rented, servicers may accept a current lease agreement and bank statements or cancelled rent checks.

b. If the borrower is using income from the rental of a portion of the borrower’s principal residence, the income may be calculated at 75 percent of the monthly gross rental income, with the remaining 25 percent considered vacancy loss and maintenance expense.

c. If the borrower is using rental income from properties other than the borrower’s principal residence, the income to be calculated for HAMP purposes should be 75 percent of the monthly gross rental income, reduced by the monthly debt service on the property (i.e., principal, interest, taxes, insurance, including mortgage insurance, and association fees, if applicable.

Alimony, Separation Maintenance, and Child Support Income

Borrowers are not required to use alimony, separation maintenance or child support income to qualify for HAMP. However, if the borrower chooses to provide this income, it should be documented with:

(i) copies of the divorce decree, separation agreement or other legal written agreement filed with a court, or a court decree that provides for the payment of alimony or child support and states the amount of the award and the period of time over which it will be received, and

(ii) evidence of receipt of payment, such as copies of the two most recent bank statements or deposit advices showing deposit amounts. If the borrower voluntarily provides such income, and that income renders the borrower ineligible for a HAMP offer, the servicer is allowed to remove that income from consideration and re-evaluate the borrower for HAMP eligibility.

20% Threshold for Passive and Non-Wage Income

Notwithstanding the foregoing, passive and non-wage income (including rental, part-time employment, bonus/tip, investment and benefit income) does not have to be documented if the borrower declares such income and it constitutes less than 20% of the borrower’s total income.

Non-Borrower Income

Servicers should include non-borrower household income in monthly gross income if it is voluntarily provided by the borrower and if, in the servicer’s business judgment, that the income reasonably can continue to be relied upon to support the mortgage payment. Non-borrower household income included in the monthly gross income must be documented and verified by the servicer using the same standards for verifying a borrower’s income.

Association Fees

If a borrower has indicated that there are association fees, but has not been able to provide written documentation to verify the fees, the servicer may rely on the information provided by the borrower if the servicer has made reasonable efforts to obtain the association fee information in writing.

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Posted in: Mortgages

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