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WHAT YOU SHOULD KNOW ABOUT MORTGAGE DOCUMENTATION REQUIREMENTS

February 28, 2019 by Royal United

It is common for borrowers to ask “Why do I need to provide all of those documents?!”

Employment and income verification are essential to applying for a loan. Exactly why lenders require so many specific forms of documentation can be confusing. Helping understand the required paperwork is part of your Loan Advisor’s profession and they need to convey its importance.

Knowing what type of paperwork is required and providing it early expedites the financing process. Check out the chart below for details about documentation required by borrows and a synopsis of why it is necessary.

Documentation: Why it’s necessary:
Most recent 2 years W2’s

 
  • Proves that the borrower has been employed for 2 years
  • Shows that income earned is consistent with what was communicated
  • Verifies address and spelling of name(s)
Most recent 2 years personal tax returns
  • Ensures that name, address, and social security number all match
  • Verifies that the income is consistent with the W2s
  • Confirms that no additional properties are owned to ensure debt-to-income (DTI) is correct
  • Confirms if there are any write-offs on Schedule C that can be verified and potentially added back into the borrower’s income
Most recent 30 day’s pay statement(s) that include year-to-date income
  • Displays hourly wage or monthly salary
  • Shows that income earned is consistent with what was communicated
  • Verifies address and spelling of name(s)
  • Used to analyze the most accurate debt-to-income (DTI) ratio calculation for the mortgage

Some additional verification is required and goes through third parties or the borrower’s employer. The chart below details what is needed and why it is necessary.

Additional Documentation Why it’s necessary:
Written verification of hourly pay or annual salary from his/her employer
  • Verifies that earned income is consistent with pay stubs
  • Ensures that any overtime pay used to calculate income is accurate and will continue in the future
  • If different from the documented W2 income, it is used to analyze the most accurate debt-to-income (DTI) ratio calculation for the mortgage
Form 4506T – Verification from the IRS
  • Ensures that name, address, and social security number all match
  • Verifies that the income is consistent with the W2s provided
  • Confirms that the borrower does not have any other business interest and that nothing is listed on the Schedule E income
Verbal verification of employment before closing
  • Ensures that the lender closes a loan that the borrower still qualified for
  • Verifies that the borrower is still employed in the same position, earning same income

Many ask why multiple pieces of income verification are needed, let alone full tax returns. All of this is done for one main reason:  protection of both the borrower and the lender.  Lending institutions are responsible for every loan they fund.  Ensuring that clients acquire loans they can afford is essential to the mortgage business and everyone involved.

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