On most mortgage transactions there will be uniform requirements for what kind of documents you will need to provide to the underwriter. Here at the Heights, we are of the belief that the more you are prepared for what is going to be required, the easier and smoother the mortgage process will be for you.
A common misconception is that since I have been at the same job for a long time, I shouldn’t need to provide very much information. On the surface, this makes sense, but one thing to remember is that in today’s modern age, there are no longer what was called “make sense underwriters.” You can think of this term as going into a bank in the 1950s and sitting down across from the banker. He knew you from around town and was aware of your character. He didn’t really rely on any lending guidelines, but instead, looked you in the eye and hear you out and made a decision that “made sense” to him.
Unfortunately, these days are long behind us. Now, all lending guidelines are made from on high in Washington, DC. Each year, as part of the Congressional budget talks, each of the lending programs has to fight for its funding, and typically, each year, as a part of that negotiation, more rules are added to the program guidelines. On top of that, these rules have to work for everyone in the country who is utilizing one of these mortgage programs, so the rules have to cover a broad scope.
So, for income, regardless of where you work, whether you work, or how you are paid, you are always going to have to document three things:
- Proof that you have a history of receiving this income
- Proof that you are currently receiving this income
- Proof of the likelihood that you will continue to receive this income
These rules manifest differently depending on the way that you are paid, but for all types of income, it will always come down to these three rules. So, today, we’ll talk about a regular, salaried employee.
In order to prove that you have a history of receiving this kind of income, we will need to get two things. First, we’ll need to gather up your previous two years’ worth of W2 forms that your employer provided to you at the end of each year. If you don’t still have these, you can typically get these from whoever filed your taxes for you, or from your employer themselves. Second, your Loan Officer will need to order a tax transcript from the IRS. This comes from the general idea that the Federal lending programs have, which is “trust, but verify.” This process is easy on you, in that you simply need to sign a form (IRS form 4506T), which will be provided to you by your Loan Officer, which they will then use to order this transcript directly from the IRS.
In order to prove that you are currently receiving this income, we will just need to get your paystubs from the most recent 60 day period. These are pretty straightforward, but bear in mind that there are a lot of things that can appear on paystubs that will trigger different sections of the guidelines, so it is not uncommon to need to get some supplemental documentation to address items that have appeared on your paycheck.
Finally, in order to prove the likelihood of your income continuing, we simply need to get a verification of employment form completed by your employer. This is actually one of the easiest items from the list in terms of simplicity, but it is not uncommon at all for an employer to be less motivated to fill this out quickly than we are, so it is a good idea to let your employer know that this request is coming and that it is important to move quickly on it.
In tomorrow’s post, we’ll move on to talking about how we go about documenting these three things for some more exotic income types.