Mortgage Insight News #3:

Loan Documentation

By Ray Peña

In mortgage jargon, documentation stands for how your loan will be submitted to the lender. The manner in which a loan officer documents your file can determine many aspects of the loan. Today there are two ways you can submit a loan. Full Documentation (Full Doc) or Stated Income Verified Assets (SIVA). In this article, we will go over the two types, help you understand what type is good for your situation and what information you will need for each. Most importantly, we will talk about how documentation can affect the overall cost of a loan.

Full Doc - Any borrower who is paid by a company that withholds taxes and social security, receives a W-2, and files a yearly tax return. These borrowers will need to have 3-5% down, Credit score of 580 or higher.

SIVA - Typically a self-employed borrower, stated income borrowers do not provide check stubs for verification of income. However, the lender may check industry income standards. Borrowers must sign IRS form 4506-T, which allows the lender to request the borrowers previous two years tax returns. SIVA borrowers must also show at least six up to 12 months of reserve capital, in some form of liquid asset. Reserve capital is the monthly payment x X months. Last but not least, all SIVA borrowers will need to have anywhere from 10 to 25% down payment depending on the deal, and the borrower's credit score will need to be in the 700 plus range to qualify for that type of documentation.

Please note - A self-employed borrower can get a full documentation loan with the same great rates and favorable credit considerations if they have filed two years of tax returns where their adjusted gross income is enough to carry the mortgage ratio-wise.

As you can see, Stated Income programs as of late have strict requirements for the borrower to qualify simply due the risk level of the borrower. It does not mean it is not possible, but be prepared. If you need to use this type of documentation, call your loan officer in advance to make sure you understand the requirements and prepare for the purchase. That being said, this program may not be available much longer.

TIP - Always be sure to save ALL the pages of your statements whether bank, retirement, mutual fund, IRA, whatever it is, save it!

To better understand Full Doc and SIVA documentation. Below is a list of the information that is needed to process a loan:

W-2ed - Salaried/Wage Earners (Full Doc)

Two months pay stubs (last 60 days)

Three months bank statements (last 90 days, ALL pages)

Two years W-2s

Assets - 401K, IRAs, Bonds, etc. (last statement all pages)

Copy of Driver's License

Copy of Social Security Card or Passport

Stated Income (SIVA)

Twelve Month Bank Statements (all accounts all pages)

Copy of DBA or Business License

Copy of Articles of Incorporation

Letter from CPA establishing business relationship for 2 years

Two Years Tax Returns (all schedules)

Copy of Driver's License

Copy of Social Security Card or Passport

Depending on the situation, other items that may be required for loan submission:

Certified Copy of Divorce decree

Certified Copy of Withholding Order of Child Support

Certified Copy of Release of Child Support Withholding

Bankruptcy Papers (all pages)

Bankruptcy Discharge/Release (all pages)

Third Party documentation

Other items that are required, but are part of the loan process:

Purchase agreement

Appraisal

Title work

Insurance agent/company information

Survey

Builder Contract, blue prints - if applicable

Pricing

Risk Level Adjustments (RLA) determines prices/rates. A full doc borrower will usually get the best rate available. In occasions when a full doc borrower has little or no credit they may get a rate that a SIVA borrower would get, meaning the higher the risk the higher the rate, comparatively speaking. Full doc borrowers are less risky, overall. SIVA borrowers are more risky simply because there is less documentation for the bank to review in underwriting. This is why higher credit scores are required for these types of loans. Full Doc borrowers can get a loan with a credit score of 580 or higher, just remember RLAs help lenders even out the playing field for all borrowers. Keep in mind that rates are determined buy various aspects of the loan, since not all borrowers/loans are the same we cannot compare rates, programs or RLAs of other borrowers.

Next month we will talk about the new updates from Fannie Mae and the Federal Housing Authority. If you have any questions or comments, please feel free to call or email Ray Peña, 281-702-8186 or raympena@gmail.com. Best Wishes! Until next time, "Know Your Mortgage Options!"

Ray Peña is a native Houstonian and a Mortgage Consultant for Nation’s Bankers Mortgage. Contact Ray at 281-702-8186 or email raympena@gmail.com.