Not only are these documents necessary to obtain pre-approval status – they will also be required to complete the mandatory loan application. Furthermore, potential borrowers who opt to get pre-qualified will be provided with a more accurate estimate of their buying power with asset/income figures at their fingertips. Regardless of the individual path each borrower may take, getting one’s documents in order will only make the process that much smoother for all involved parties. The following is a list, though not necessarily complete, of documentation that should be furnished as the borrower finds it applicable:
- Paycheck stubs, documenting year-to-date earnings and pay period, for the most recent 30-day period
- W-2 forms from the past two years.
- Signed and dated copies, including all schedules, of federal tax returns for the past two years.
- Two most recent years of corporate tax returns (1120s).
- Year-to-Date Profit and Loss Statement signed by your accountant if self-employed.
- Two most recent years K-1s for all partnerships.
- Two most recent years of partnership tax returns (1065s) if ownership is or exceeds 25%.
- Two most recent months of bank/brokerage statements for all assets.
- Pension/Social Security Award Letter(s).
- Rental/Lease Agreements for any investment properties.
- Final divorce decree or separation agreement.
- If holding title in Trust, must submit all pages of it.
Getting Qualified and Approved
Pre-qualification: A process by which mortgage lenders, through simple calculations based on financial information provided by the borrower, give an estimation on the amount of money for which a buyer might be eligible. Pre-qualification figures are not binding and represent only an opinion about the borrower’s financial capacity. Such a general quote, however, can be extremely useful when looking at prospective properties to purchase.
Pre-approval: A process by which mortgage lenders thoroughly review a borrower’s financial situation and ascertain the amount of money that they will lend. Such status is particularly useful to a borrower because it achieves several things: determines the borrower’s maximum eligible loan amount so that time is not wasted looking at properties out of one’s range, gives the borrower a stronger negotiating position with the seller since the loan amount has already been approved, and also expedites the closing process.
Opening the File
The borrower’s application and supporting documentation are reviewed and any missing information is noted and requested. During this period the property appraisal, credit reports, escrow and title are also ordered. Additionally, verifications of employment (VOE) and deposit (VOD) are sent out if applicable.
Processing the Loan
This is where the processor reviews the property appraisal, credit report, returned verification forms, and other related information. Any potential issues arising from these items are addressed so that a complete package can be submitted for underwriting to the lender.
The Underwriting Process
This is where the lender reviews the broker’s compilation of documents. An individual, the underwriter, reviews the package to determine if it meets approval by conforming to the lender’s specific guidelines. At this stage additional documentation may be required to finalize the lender’s underwriting analysis and facilitate the transition to closing.
Once the loan has passed through and completed the underwriting stages it becomes scheduled for closing. At this point loan documents are prepared and sent via email or overnight express to the escrow company, the designated closing agent used for California transactions (some states employ attorneys for this function).
An appointment will then be set by the closing agent to facilitate the signing and notarizing of the loan documents. The borrower should be prepared to bring a cashiers check to the meeting or arrange for a wire transfer to pay for the remaining funds aside from the initial deposit. Funding will then take place after the signed loan documents have been reviewed, homeowner’s insurance has been confirmed, and any remaining “conditions” have been satisfied by a funder.
The lender will then generally disburse the funds to the title company who, with the final approval of the escrow company, allows funding to take place. The recording of the loan documents will generally take place on the business day following loan funding, although in some counties funding and recording take place on the same date. This constitutes the final close of escrow, after which the closing statement or HUD-1, along with any excess funds that were not used to close the loan, will be delivered to the borrower.