If you recently applied for a new home loan, you might be surprised at the large number of documents your lender will expect you to hand over before your loan is approved.
In 2005, 2006 and 2007, many mortgages required only limited documentation. But today, lenders have begun to reinstate traditional "full doc" requirements. The fact is that lenders have become pickier in recent months about who can qualify for a loan, and more documentation is part of that trend. Even if you submitted very few documents when you obtained your current mortgage, you’ll likely be asked for a stack of documents if you want to refinance now.
Why is documentation necessary?Documentation isn’t just paperwork. Lenders actually use your documents to verify the information on your loan application and make an assessment of your financial situation.
Some of the documents you’ll be asked for include W-2 forms and paycheck stubs. These show that you earn enough income to make the payments on your new mortgage. If you’re self-employed, you might be asked for financial statements to support your earnings or net worth. You may also be asked to produce bank account statements to demonstrate that you have enough cash for your down payment, if you’re buying a home, and closing costs. Be sure to keep copies of all of your documents for your own records.
Lenders also rely on documentation to spot possible cases of loan fraud. That’s another reason why your lender may become suspicious and set aside your file if you refuse to provide the required documents.
Some borrowers think the loan process is annoying or intrusive. But documentation serves a reasonable purpose and typically can’t be avoided unless you’re willing to accept a much higher interest rate. The payback for your cooperation should be a speedier and more definitive thumbs up or thumbs down on your new loan.