Why Does Your Mortgage Require So Much Paperwork?

One of the first things home buyers comment on is all of the paperwork that a mortgage company needs to process, underwrite and approve a loan. While it may seem like they’re taking everything short of a DNA sample, everything has a purpose.

There are different required documents whether you’re buying your primary residence, a lake home (with a second home mortgage), or refinancing your current mortgage—there are different requirements and they all serve a purpose. The following are some of the most essential documents you will need to provide.

Bank, Retirement, and Investment Statements

The most common requirements from mortgage companies are 2 months (or the most recent quarterly) of statements. If you provide an activity printout, it needs to be stamped and signed by a teller at your bank. This certifies that you didn’t just create something on your computer.

The two-month window is used to confirm that “your money” that is being used to buy your house is actually your own earned money. One tactic of loan fraud is when "Person A" has a substantial amount of cash, but doesn't qualify because of either bad credit, low or undocumented income, etc., so they give "Person B" that cash to buy a home for them. 

Pay Stubs

The typical time frame required for pay stubs from your employer is the past 30 days. Most pay stubs show total hours worked, hourly/salary/commission wages, and also year-to-date earnings. They can also inform the lender of other things that may have been forgotten by the borrower to claim as income or debt—including withholdings for child support, 401(k) loans, and other situations that will affect your usable income.

Tax Returns

Lenders can use “claimed” income from your tax return (gross income – deductions = claimed income). People who are contractors, self-employed or union workers who write off business expenses or other union dues can report less income on their mortgage file than they actually earn. This is the only way to actually see that information in any detail.

Divorce Decree or Child Support Order

The court documents are the only certifiable source to document what you pay/receive in child support or alimony. This is an additional factor in determining your income. 

Why all the Paperwork?

Your lender may know who you are and what your story is (something we pride ourselves in at Ruoff Home Mortgage), but that doesn’t mean that investors or auditors down the road will be in the same boat. 

Mortgage companies need to contain the necessary information to pass an audit from any of the federal regulators. Fannie Mae and Freddie Mac, two such regulators, have guidelines that must be followed in order to keep both the homebuyers and the mortgage lender safe from potential risk.

Conclusion

Different loan programs, borrowers, and scenarios will all have different requirements. It’s our responsibility as your mortgage company to paint the clearest picture possible to get your file approved.

Some people don’t like the notion of digging so deeply into your personal and financial lives but keep in mind that this part of a reputable mortgage company's due diligence because they are lending a lot of money. If you were going to lend that much money to a complete stranger, wouldn't you do your fair share of research too? 

The Good News:  Technology

Ruoff Home Mortgage can use a variety of automation services to pull much of the required documents for you—saving you time and energy! Review our recent blog post "RETRO IS IN STYLE, UNLESS WE'RE TALKING HOME FINANCING"  to learn how we've made the process simple and easy for you!

If you’re ready to tackle this paperwork and become a homeowner, a Loan Officer can talk about your options and get you into a home. And with our online application, we are able to gather these documents much faster and easier. The best part is that you can do it online wherever you are!