Verifying Your Down Payment,
Closing Costs, Assets, Income and Debts
This is one of the most critical steps in the mortgage loan application process. Due to all the new lending regulations, verifying the sources for your down payment, closing costs and assets, as well as documenting income and debts is a priority of every Lender. The lender uses this step to determine your qualifications as a borrower and your overall ability to repay your loan. There are NO shortcuts with this process and borrowers can become very frustrated if they are ill prepared to document every penny that is needed to qualify for their loan.
Down Payment & Closing Costs
Here are some basic rules that Underwriting will require when you get a loan. First, all funds needed have to be Sourced and Seasoned for at least 60 days prior to close. Basically this means verify WHERE the funds come from and that you need to have them in a account for the last 60 days. Having "Mattress Money" or other sources of cash available unfortunately cannot be used to qualify for your loan. Documenting that the down payment comes from your accounts and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.
Take extra care to document the sources for any monies to be used for the down payment or closing costs.
Acceptable Down Payment & Closing Costs Sources
- Cash in a bank account
- Mutual funds / stocks / IRA / 401(K)
- Proceeds from the sale of another property
- Gift from an immediate relative
Collect information about your personal assets that add to your net worth and help to prove your credit worthiness.
Common Assets Considered in a Mortgage Loan Application
Stocks, bonds, mutual funds, 401(K) and retirement accounts
Personal property estimate - cars, boats, antiques, jewelry, etc.
Other real estate or property
Income and Employment
The lender will want to confirm your current gross income and have evidence of stable employment for the last TWO years. Documentation requirements vary depending upon a number of factors - including the source of income (hourly, salary, salary + bonuses, salary + commission, commission, self-employed, etc.). One thing to remember about income is that Lenders have certain guidelines they must follow when calculating it for loan approval. What you might think is income because it's on your paycheck stub does not always mean it can be used. Another item that will affect your income used to qualify is how you file your tax returns. Rental property losses or unreimbursed expenses do not show on your pay stubs or W2's but will ultimately be reviewed during the loan approval process. This can cause your loan to be denied so make sure you disclose all this upfront when starting the loan process because inevitably it will come out. Underwriting will verify your employment up until the day of funding so making sure all your job info remains the same throughout the loan process is essential to getting a loan. Switching jobs during a loan process is a major obstacle and can result in loan denial
Your lender will want to review a list of all your current debts. This along with your credit report will provide the lender with a snapshot of your obligations. The lender will want to confirm that you will not be overextended when the mortgage payment is added to your current debt load.