The home foreclosure crisis that saw the seizure of more than one million United States properties in 2010 has led mortgage lenders to seek more information. Applicants are now required to provide more proof of their identity, income and debt than they once were. As of January 2013, the Bureau of Consumer Financial Protection implemented the Ability to Pay Rule. Under these guidelines, creditors are required to make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling.
Prove your income.
Before the housing crisis, large cash deposits from unverifiable sources were not questioned by mortgage lenders. However, the source of these deposits is now required. The many other forms of income proof include W-2 forms, pay stubs, and tax returns. A court order or other form of proof will also be needed if claiming income from child support or alimony payments. If someone has given the applicant a large cash gift, lenders will need a letter from the gifter to explain how much was given. Proof of reserves and cancelled rent checks are necessary and actually helpful if you have saved and paid your rent regularly. Veteran’s are also advised to provide proof of military service as this adds loan options and down payment assistance not available to everyone.
Prove your payments.
The first step in applying for a mortgage is a credit check. Borrowers should be prepared to pay for this outright. Lenders use credit scores to determine the payment reliability of applicants. Customers are encouraged to obtain their own credit report before applying. This gives them the chance to find and correct errors or pay any debts that may have been lost in the cracks. Lenders will also need to see proof of homeowner’s insurance for the property to be financed.
Prove your identity.
Nearly 18 million Americans were victims of identity theft in 2014. For this reason, mortgage brokers require several form of identification. They will need a valid government issued passport or identification card. A valid, verifiable social security card will also be necessary. In the case of immigrants, citizenship verification such as a permanent alien card or work visa will be required. This protects lenders from entering into transactions with borrowers that are illegal residents of the U.S.
The more information clients can provide to their mortgage lender, the more appropriate their interest rates and payments will be for their situation. Being prepared with proper and complete proof of income, credit and identity will also make the homebuying process easier for applicants.