Minimum requirements for a mortgage: They’re not that bad
For many borrowers figuring out the minimum requirements for a mortgage is about as simple as calculating the weight of Neptune. It all seems so complex, so confusing, and – too often – so unnecessary.
You know you’re good for the mortgage ,so why can’t lenders take your word for it and make things easier?Verify your new rate (Jan 24th, 2020)
Automation makes it easier
This may be hard to believe but behind the mortgage process there is actually some logic. Not only that, lenders are making applications increasingly easy.
Let’s start with the good news.
You may hear lenders talk about the idea that they can now determine your ability to borrow in just a few minutes. This is increasingly true.
You simply feed some basic information into a mortgage application. Then, a magical automated system instantly connects with credit bureaus (and sometimes payroll processors and banks). Minutes later, you have a lender response.
The new systems save a lot of time, but you may still need to provide additional documentation as the loan is processed.
What makes all of this possible is the better use of artificial intelligence, government requirements, and a strong desire for accuracy.
First, there’s artificial intelligence, New programs plus a growing supply of data allow lenders to gather and assess your financial profile faster and more accurately.
Second, there are new government requirements. New federal rules that apply to most mortgages require lenders to assure that you have the ability to repay the loan.
According to the Consumer Financial Protection Bureau, “Mortgage lenders must look at customers’ income, assets, savings, and debt, and weigh those against the monthly payments over the long term — not just a teaser or introductory rate period.
“As long as they check the numbers and the numbers check out, lenders can offer any mortgage they reasonably believe a consumer can afford.”
Who are you, anyway?
Another set of requirements doesn’t involve money and numbers, instead it involves you. The government wants lenders to be sure that you really are who you say you are.
As Fannie Mae explains, “Lenders must confirm each borrower’s identity prior to the extension of credit. Fannie Mae’s requirements for borrower identity verification are intended to align with lenders’ existing federal obligations under laws requiring information and document verification, including the Department of Treasury’s Office of Foreign Assets Control (OFAC) regulations and the U.S. Patriot Act.”
Translation: The lender will ask for government-issued IDs such as a driver’s license.
Third, lenders are under pressure to provide accuracy. The lender is responsible for checking the numbers and assuring that they’re correct.
If a lender does not get the application right, it might be sued for big money. Mortgage investors, government agencies, and mortgage insurance companies all have a stake. And this is the reason lenders are so picky about loan applications.
Paperwork and minimum requirements for a mortgage
Despite all the advances in automation, it’s wise to assemble information likely to be needed by a lender. I you have required information in hand, you can speed the application process. That becomes especially important if you have locked-in a mortgage rate.
In addition to any specific lender documentation requests, the Federal Reserve suggests that borrowers have the following information available for lenders:
- The purchase contract for the house if you are buying. Be sure to include all pages (including blanks) and addenda.
- You’ll need bank account numbers, the address of your bank branch and your latest bank statement. Plus pay stubs, W-2 forms, or other proof of employment and salary.
- If you are self-employed, balance sheets, tax returns for 2-3 previous years, and other information about your business.
- Information about debts, including loan and credit card account numbers and the names and addresses of your creditors. In practice, lenders will be able to get most of this information from credit reports. Still, you want to make certain that you disclose all account information.
- Evidence of your mortgage or rental payments, such as canceled checks. It’s best to have at least the last 12 mortgage or rental checks.
- You will need a Certificate of Eligibility from the Veterans Administration if you want a VA-guaranteed loan. Your lender may be able to help you obtain this.
In today’s world of increasingly electronic mortgage applications, you may not need some of the items above – but if you do you’ll be grateful to have them.
What are today’s mortgage rates?
Today’s mortgage rates are still very advantageous for home buyers. Get an even better deal by comparing several competing offers from mortgage lenders.Verify your new rate (Jan 24th, 2020)