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.

What Paperwork Do You Need To Get A Mortgage? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Given such enthusiastic consumption it seems almost unfair to mention the other side of the financial coin: Savings.

Figures from the St. Louis Federal Reserve show the savings rates have drifted down, “dropping from averages of around 9 percent in the 1980s, to approximately 5 percent in the 1990s, to almost zero in the first years of the new century. Recent reports in the media have alerted the public that the U.S. saving rate, as currently measured, is at its lowest level since 1933, the bleakest year of the Great
Depression. Of course, this historical comparison is disturbing at a minimum. Moreover, monthly data on household debt service payments as a percent of personal income have reached all time highs. (See: The Decline in the U.S. Personal Saving Rate: Is It Real and Is It a Puzzle? Federal Reserve Bank of St. Louis Review, November/December 2007)

Okay, so the numbers say we no longer save, at least in the sense of savings accounts. But is this really a problem? After all, many of us have seen a huge increase in real estate values over the past decade. If you think about it, that equity is a form of “savings” so despite recent pricing declines vast increases in home prices during the last few years have really amounted to a massive savings increase. And if we spend some of that accumulated equity, so what? Such spending is merely a by-product of the “wealth effect” created by growing home values.

For all the talk of the “wealth effect” created by rising home prices, real estate equity is only a potential cash equivalent. You can’t get at the wealth in your home unless you sell or refinance. If you sell you have to live somewhere else and your equity is reduced by selling and moving costs. If you refinance — perhaps by getting a home equity line of credit — some of your equity is effectively available to you, but only if a lender says okay.

In other words, home equity surely exists but it may be less than owners think and it may not be accessible without paying a lender. Or it may not be accessible at all with weak credit.

Savings — quickly available cash — is different. With savings, lenders pay you and your money is available on demand — even most certificates of deposit can be quickly redeemed, though owners will likely lose some interest.

With savings you don’t have to qualify to get your money. You don’t have to pay interest. You don’t have to make promises to a lender.

No less important, savings are available when needed. Think about the homeowner with an impressive level of equity — and think about that person after they’ve lost a job. Will lenders make loans to someone without income?

If savings are important then the question is: How much should you save and how should you save to get the best results?

It’s easy to say that savings as much as possible is the ideal formula, but that’s not quite the case. After all, there’s no sense working hard, earning a good income and then living like a hermit.

Instead, a more practical approach might be to set aside a certain amount of your paycheck or monthly income. Pick a number than makes sense, say 10 percent of your gross income — the money you earn before taxes.

If you have a gross income of $4,000 a month you would want to set aside $400. If $400 is impractical, try $300 or $200 or whatever number makes sense.

Take your monthly savings and divide it in two. Place half the money in a savings account and use the rest to reduce credit card balances and other debts.

Faster than you think you’ll pay off bills here and there. The money not spent for old bills, and the interest not paid, can then be added to savings and the same process can continue: half for savings and half for bill prepayments and reductions.

Imagine that you set aside $200 a month — $100 goes into savings and $100 goes to pay down the remainder of a dental bill. The bill has $1,700 remaining and you’re required to pay $50 a month. Increase that payment to $150 a month and the debt will be repaid in less than a year.

With the dental bill gone you now have an extra $150 a month — add that to the $200 you’ve been putting aside and you have $350 available per month. With such money savings deposits can increase to $175 a month plus $175 extra is available to tackle the next bill.

In addition, of course, there’s $1,200 in the savings. At the end of year #2 savings will have increased to $3,300 plus interest ($100 x 12 in year #1 =$1,200, $175 x 12 in year #2 = $2,100) plus an extra $2,100 will be available for debt reduction. Of course, if all debts are gone you can always put some or all of that $2,100 into savings.

With less debt credit scores will rise, meaning you will be able to borrow at lower cost. With lower monthly payments your ability to qualify for a mortgage or home equity loan will increase. With cash in the bank you will be better able to face surprise auto repairs or other emergency costs.

Is this the fast and slick way to earn money? Will there be a TV infomercial to sell this powerful, dynamic debt reduction program?

Not likely.

It will be hard at first, but with a little discipline it’s possible to radically change your financial profile regardless of your income. The way to start is to make a list of monthly bills, see which one you want to end first and then go for it.

With fewer bills and lower monthly costs the equity in your home will be cheaper and easier to get, a nice by-product of old-fashioned thrift.

How To Budget & Save In Hard Times is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Answer: The answer most likely is “yes.”

While $200,000 would seem to be a ridiculous amount of debt given your current income, it’s actually an investment in your professional development. Because of your training, you will be able to command a substantial income that will allow you to re-pay your school debt — and a mortgage.

Because of your potential income-earning ability, many lenders will make exceptions and qualify you for financing, providing you otherwise have good credit.

How Will Med School Debts Impact My Mortgage Loan Application? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The “front” ratio is generally equal to your monthly costs for principal, interest, property taxes, and property insurance (what lenders call “PITI”). The “back” ratio includes the front ratio plus all regular monthly costs such as credit card payments and auto payments.

For example, Hall has a household income of $6,000 a month. With a conventional loan, a lender might allow ratios of “28/36.” The front ratio is “28.” This means 28 percent of Hall’s pre-tax income can be used for principal, interest, taxes, and insurance. In this case, 28 percent of $6,000 is $1,680 per month.

The back ratio is “36.” This means lender guidelines will allow Hall to devote 36 percent of $6,000, or $2,160 a month, to PITI plus regular monthly costs for items such as credit card debt, auto payments, etc.

Different programs use different front and back ratios: basic FHA loans are at 31/43 while VA ratios are more liberal at 41/41. Some ARM programs use 33/38 ratios.

Program ratios can be elastic. For instance, the use of energy efficient appliances and construction can help liberalize ratios, sometimes by 2 percent. This can be important for those trying to meet qualification standards.

In recent years, lender guidelines for many programs have become more liberal — meaning that more can be borrowed with a given income. For details, speak with lenders and real estate brokers.

What Are “Front” and “Back” Ratios? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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