January 21, 2019
While the shutdown drones on, and the football season wraps up, Orion’s brokers continue to be focused on what matters: their borrowers, the basics, and getting one loan done at a time. When submitting a loan application to buy and finance a home, there are multiple things brokers and Orion need to review. The most important are income and employment, credit history and your client’s credit scores and assets. We don’t want to repeat the mistakes about 10-12 years ago.
Verification of income for self-employed borrowers includes providing their last two years of income tax returns both personal and business as well as a year-to-date profit and loss statement. If a borrower is not self-employed, usually they’ll be providing the last two years of W2 forms along with most recent pay check stubs covering a 30-day period. We all want to make sure a client is financially able to repay the new mortgage along with other monthly credit obligations.
Lenders also look at assets being used to buy and finance the home. First, the lender needs to make sure there are enough funds available for a down payment and closing costs. Brokers will provide a loan cost estimate which will itemize the various closing costs their client might encounter at settlement.
There will also need to be a certain amount of cash available after the transaction has closed. These amounts are referred to as “cash reserves” and are tabulated as the number of months of mortgage payments in a liquid account. If the new mortgage payment, including taxes and insurance, is $2,000 and the loan program asks for six months of cash reserves, your client will need to show $12,000 available in addition to the funds needed for their down payment and closing costs.
Orion’s underwriters also look at bank statements to make sure the funds belong to your client. Their name will need to appear on the statements. If there is another name on the statements, that person must provide, in writing, permission to access all the funds in the account if that person is not buying the home with your client. Otherwise, the borrower will be attributed 50 percent of the total, not the entire amount.
Finally, all legitimate lenders want to verify the deposits on the account are coming from a legitimate source. Most often there will be deposits on the 1st and 15th for example. We can match these deposits up with paycheck stubs. If self-employed, the profit and loss statement should show a similar amount of deposits reflected as income and deposited in an account. If there are any deposits that cannot be sourced, those funds may not be counted toward available cash to close.