Glossary of Documentation
a. We need the complete statement with ALL of the pages.
i. If you receive a statement that has 5 pages & the last 3 pages are advertising & reconciliation pages, we STILL need all 5 pages (no exceptions)
b. You cannot white-out account numbers or names.
c. Screen shots & internet printouts are NOT acceptable.
i. If you receive all of your statements electronically, you will have to log-on to your account & see if your bank provides PDF statements. If they do not, you will have to contact your bank or stop by a local branch to request the complete statements.
d. We need PDF statements. Other formats are NOT acceptable.
Non payroll deposits (Bank Deposits of All Sizes Can Cause Headaches)
a. All mortgage lenders selling loans in today’s financial world have a fiduciary responsibility to the investors in the secondary market to create and originate mortgage loans with the highest degree of minimal credit risk. Beyond that, the government regulations currently imposed on mortgage lenders today require them to adhere to strict anti-money laundering policies. As such, all funds in accordance for reserves or cash to close must be documented and sourced.
i. Recently, underwriters have been requiring that ALL deposits other than payroll be documented with a paper trail. These “significant” deposits can range from: 1. $10 Mail-in-Rebate checks 2. $50 Birthday checks from Grandma 3. $600 in quarters from a Laundromat 4. Any other non-payroll deposit
For mortgage lending purposes, a paper trail clearly shows a beginning point and an end point, and it documents how the money moves from point A to point Z & how & where it came from.
The underwriters are not deeming any deposits as “insignificant”. They need to be sure you’re not borrowing against anything else or cash advancing credit cards to qualify for home financing.
You need to show you can meet all your monthly expenses based solely on payroll income, or other verifiable income (i.e. social security income). The process to document these deposits is simple:
1. Talk to your banking institution to request a copy of the checks in question.
2. They will usually provide these on the spot & keep these records for at least 90 days.
3. You will provide the underwriter with a detailed letter of explanation that clearly shows the details of the deposit.
Following these steps will satisfy the underwriter almost every time!
With all of the features that online banking has to offer, it is very common for people to transfer money between accounts these days. Therefore, banks do not discriminate against borrowers who do so. However, whenever there are money transfers between accounts, there is a strict process that must be followed with NO exceptions.
1. You will be required to supply a ‘paper trail’ for the money transfers. For mortgage lending purposes, a paper trail clearly shows a beginning point and an end point, and it documents how the money moves from point A to point Z.
2. You will need to supply the complete bank statement from the financial account the money originally came from (there could be a couple accounts you may have to get statements for).
3. You will have to supply a signed letter of explanation detailing the paper trail.
LOX “Letter of Explanation”
It's not unusual these days to have a lender request a LOX "letter of explanation" from a home buyer or someone who is refinancing their current property. A LOX is often used to help provide more information to the underwriter. LOX’s may address anything from gaps in employment to inquiries on a credit report, and is intended to help explain, or add support to the transaction. If a borrower has had an extenuating circumstance and is trying to have an exception granted to an underwriting guideline, they may be asked to write a LOX.
When a borrower is asked to write a letter of explanation, they need to address what the situation was, why it happened and possibly, what has been done to improve the situation. For example; someone was unemployed for a while or had their income reduced. If you've had your credit checked in the last 120 days, be prepared to provide an LOX addressing each inquiry. The lender needs to know what the inquiry was for and if a new debt was incurred from any inquiry.
Sometimes lenders will require a letter to explain one's motivation for buying. This may sound silly to you, this is because of past cases of fraud, typically those involving occupancy. This request may be triggered when someone buys a smaller home than what they currently own (as owner occupied) or buying another home that is nearby (within 50 miles) of their current residence that they own. These circumstances can raise a red flag to an underwriter and if the property and transaction appear to be more fitting as an investment property than a primary residence, the underwriter may still want to treat the transaction as an investment regardless of how strong the letter is.
When you write a LOX, consider that you are essentially writing this to the underwriter and your goal is to present a good case of why you should be approved for a mortgage. Be truthful, thoughtful, keep to the point and if you have any documents that may support your scenario, you may want to include them. LOX’s are not an uncommon request in today's mortgage climate.
If your lender asks for a LOX, please follow these steps:
- Keep it simple!
- Just explain the facts NOT emotions
- Make attention to the lender
- Include the date
- Include address of property
- Sign the letter
There are a number of people whose assistance is required for completing your loan. Some examples would be:
1. Real Estate Agent(s)
2. Homeowner’s Insurance agent
3. Homeowner’s Association contact
4. HO6 Insurance agent
7. HR contact
If we need something from one of these agents, it is EXTREMELY helpful to have all of their contact information, (phone, fax, email (ESPECIALLY) their email).