Katy's Korner

Richard Redmond of All California Mortgage

Remember the skull and crossbones warning sign that always appears on poison bottles in cartoons? Well, in this day and age, that should be the logo on the front of a loan application. In trying to atone for their sins of the past, the banks in general, and Fannie Mae and Freddie Mac in particular, have intensified their scrutiny of all information that borrowers provide, and have become increasingly rigid in their requirements. With that in mind, here are some tips for avoiding the increasingly common delays and problems in the mortgage application process.

1) You will generally be asked for the two most recent account statements in order to verify the assets listed on your loan application. The lender wants actual statements – not internet print-outs. If you have gone ‘paperless’ you should be able to go to your bank/brokerage website and find your statements available in pdf format; often you can save and then e-mail the pdf to your lender, the quickest and easiest solution.

2) On any document that the lender has requested, especially account statements, it is important that you provide all of the pages, even blank ones. If a lender sees ‘page 3 of 13’ you will be asked to provide all 13 pages, and there are no exceptions to this rule.

3) If you are self-employed you may be asked to provide a P&L for the period since your last tax return was filed. This does not have to be audited, or prepared by a CPA. If you are preparing it yourself, it is easy to use your most recent 1040 Schedule C as a template for the information needed. If the P&L is substantially different than your most recently filed 1040 Schedule C, be prepared to explain why. If the income on the P&L is lower, the lender will probably use the P&L figure, not an average of the last two or three years.

4) Check with your lending officer before taking on any new credit obligations, an auto loan or lease, furniture purchase, or a boat loan, for example. If you do increase your debt, make sure your lending officer knows. A new loan that turns up before a close can cause delays, and could jeopardize an approval.

5) Lenders will want any unusual increases in the balance of an account explained and verified. Moving money between different accounts will usually require a paper-trail to show the money leaving one account and going into another. If an account balance shows an increase, and the money came from a third party, you will need a gift letter or a good explanation of the source of those funds. Lenders will often want down payment money tracked at the end of a transaction, and the statements provided to track these funds will often result in additional questions about changes in account balances. As a rule, let your lending officer know before you move your money around, and let the lending officer know in advance which account your down payment will be coming from.

6) Let your lending officer know early on if you will be taking title in the name of a trust, or if one or more borrowers will need to have someone else sign by using a power-of-attorney.

7) If you are going to be out of town at any time before close of escrow, let your lending officer know well in advance. Normally, you will be signing your loan papers approximately one week before close of escrow. Knowing your travel schedule in advance should enable your lending officer to work with you on timelines.

Be responsive to your lending officer’s requests. After a loan has been conditionally approved many lenders will not review the items that they have requested until all of them have been received. At that point, they may request additional documentation. It is very important that everything is provided as quickly as possible. One missing document can cause a major delay in the approval process.