Mortgage Loan Documentation
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Mortgage Loan Documentation
Mortgage Loan Documentation is a risk-based pricing factor that affects the overall interest rate an individual borrower will qualify for. The general rule is that the less verifiable documentation a borrower provides, the more expensive the interest rate becomes. The major categories of mortgage loan documentation are as follows:
Income and asset documentation is the most misunderstood and error-prone aspect of mortgage qualification. The borrower and the broker both need to carefully calculate and appropriately represent adequate income and assets in relation to the mortgage program’s predefined ratios. If an error is made upon loan submission, it will either get denied or unfavorably priced (higher interest rate).
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[edit] Full Income Verified Asset (FIVA, Full-Doc)
Income must be documented high enough to qualify for mortgage using the mortgage programs standard Debt-to-income ratio (DTI) guidelines.
Example: The DTI ratio needed to qualify for a specific mortgage is 50%. Principle Interest Taxes Insurance monthly payment or PITI = $1500/Month. Borrower credit bureau reports $800/month in other debt (auto, credit cards, student loans, other mortgages). $1500/Month PITI + $800/Month other debt = $2300/Month in total debt. Borrower must document at least $4600/Month in income to qualify for the mortgage. $2300/50% = $4600.
Income Documentation
Salaried/Hourly.
* 2 most recent and concurrent yrs W-2.
* 2 most recent concurrent pay-stubs.
Self Employed and/or Other Income.
* 2 most recent and concurrent business and/or personal tax returns..i.e. 1040, Schedule C,
and/or K-1 all pages signed by the borrower.
* 2 most recent and concurrent months personal and business bank statements (all pages).
* Rental Property Income: Tax returns. Leases, appraisal summaries with rent reports.
Asset documentation must demonstrate anywhere from 2 to 10 months worth of subjects total monthly mortgage payment or PITI, depending on Property Use. Higher cash reserves are typically required for investment property. Lowest cash reserves are required on a Primary Residence. For example:
Mortgage program requires 2 months PITI in seasoned assets to qualify. PITI payment = $1500/Month. $1500(payment) x 2(months) = $3000 in documentable assets required to qualify.
Borrower MUST provide 2 most recent concurrent monthly statements OR most recent quarterly statement for any/all accounts that apply to support asset verification amount: Checking/Savings 401(k) IRA Stock Brokerage Account
Borrowers wishing to obtain any type of Stated documentation loan must usually provide proof of at least 2 years self-employment. Accepted proof includes: Letter from CPA stating your filing 2 yrs tax returns via CPA. 2 years most recent concurrent business licenses. 2 years most recent concurrent tax returns (actual income numbers are traditionally blacked out), Schedule C, or K-1, whichever apply.
[edit] Stated Income Verified Asset(SIVA)
Income must be verbally stated by the borrower at a level that qualifies for the mortgage using the programs standard Debt-to-Income ratio (DTI) guidelines and is consistent with borrowers occupation. Example:
The DTI ratio needed to qualify for a specific mortgage is 50%. Principle Interest Taxes Insurance monthly payment or PITI = $1500/Month. Borrower credit bureau reports $800/month in other debt (auto, credit cards, student loans, other mortgages). $1500/Month PITI + $800/Month other debt = $2300/Month in total debt. Borrower must verbally state at least $4600/Month in income to qualify for the mortgage. $2300/50% = $4600.
Asset documentation see Full-Doc'
[edit] Stated Income Stated Asset (SISA)
Income See SIVA Income
Asset amounts must be verbally stated to display anywhere from 2 to 10 months worth of subjects total monthly mortgage payment or PITI, depending on Property Use. Higher cash reserves are typically required for investment property. Lowest cash reserves are required on a Primary Residence.
Many lenders will offer SISA documentation requirements if the middle FICO is over 720 (with required depth) at no additional 'cost'.
Some loan programs only allow self-employed borrowers to state their income and assets while others allow both self-employed and wage earner borrowers to use this feature.SISA Mortgage
[edit] No Ratio Loan (NIV)
Income is not stated. Employment is verified, program DTI requirements are waived.
Asset documentation must display anywhere from 2 to 10 months worth of subjects total monthly mortgage payment or PITI, depending on Property Use. Higher cash reserves are typically required for investment property. Lowest cash reserves are required on a Primary Residence. For example see Full Doc
[edit] No Income No Asset (NINA)
Income is not stated or verified.
Assets are not stated or verified.
Employment, income, and asset information is completely omitted from the 1003 application. Name, address, SS#, Drivers License and other identity disclosure documentaion is usually all thats required for a No-Doc loan.
A word about Reduced Documentation Loans: BEWARE, ‘stated loans’ are becoming a large problem under the realm of Mortgage fraud and Predatory lending tactics. Qualifying for a Stated Income Verified Asset (SIVA) loan comes highly at the discretion of the Broker, who is supposed to diligently verify that the subject borrower makes more in gross income than they can transparently document. Many times, self-employed borrowers take advantage of significant tax write-offs they may enjoy at the expense of ‘proving’ the income. The lender recognizes that the borrower COULD be taking home more money than the IRS taxes, however, many brokers use SIVA loans as a tool to qualify a borrower even though they may know the borrower does not meet income requirements. This is a version of mortgage fraud and should be avoided. Do not let a Broker put you in a SIVA loan if you do not make enough money (using the lenders prescribed DTI ratio as a benchmark) to make the mortgage payment. There are alternative stated documentation loans available, See SISA, No Ratio, and No Doc Loans.
