Pick up a newspaper and you are sure to read, “According to anonymous sources…” For most of us, this statement sends up red flags. We wonder whether “anonymous” would stand by their statement. Is what they are saying really true? This same red flag goes up for lenders with anonymous sources of money for your home purchase.
Home loans, whether for purchase or refinance, are all about trust. Actually, they are more like the old proverb, “Trust, but verify.” Your lender needs to trust that you can repay the loan. This means verifying a lot of information dealing with the money you will use to close and your income.
Funds for Closing
Here is where the headaches can begin. Lenders want to connect the dots on where funds for closing came from and where they are stored. Here is a quick list of things to consider:
* “New” money – Let’s say that Aunt Ester wants to help with your down payment. BE CAREFUL. Money to close has to be “seasoned.” This means you must have the money in your control for a certain period of time prior to closing. If this sounds like you, check with your lender early in the process.
* Prior home – If you are using proceeds from the sale of another home, have a copy of the HUD1 Closing Statement available. It confirms a big chunk of the down payment.
* Invested funds – You might have money for closing invested in some conservative bond fund. Underwriters want to see liquid funds and that means in a money market or saving account.
* Earnest Money – When you made your offer, you gave the seller a deposit, called earnest money. You may have to provide copies of the cancelled check to verify that they got the money.
This is straightforward. Show bank statements with regular paycheck deposits and tax returns, and you should be good. If you are retired or self employed, things can be a little more challenging. I had a retired client who received monthly annuity payments. The underwriter wanted him to document that these would continue for at least three years. By knowing early, we got the needed documents.
We all love our modern conveniences, including electronic banking. The good news is that many of the things the underwriters want are relatively easy to print or download from your home computer. If you are emailing your documents, some web browsers, like Google’s Chrome, let you save documents in formats like Adobe Acrobat or Microsoft XPS.
One tip that may save you time and heartache is to ask your loan officer to be VERY specific in what he or she wants. If you are asked for account statements, ask how many months. If asked for printouts of accounts, determine specific date ranges. If you are wiring money for escrow, get the instructions early.
So here’s the bottom line. If you are prepared to give detailed answers to probing questions, things will go much smoother. Lenders want to be comfortable that you are a good credit risk. They really aren’t picking on you, even if it seems like it.