As published in Scotsman Guide's Residential Edition, December 2005.
In the past 20 years, the mortgage industry has evolved and adapted to borrowers' changing needs. The recent transformations have enabled a new kind of borrowers who lack the standard verification of two years of employment, income and assets. Although these borrowers would not have qualified easily for mortgages because they lack documentation, they now can enter into a loan customized to meet their needs.
To avoid common mistakes when submitting loan applications to lenders, mortgage brokers should be aware of all alternative-documentation types available today. In addition, understanding the lender's thought process when reviewing and submitting applications for your customers will help drive efficiencies and ensure the right loan choice.
Income and asset documentation
First, it is important to understand the current income and asset documentation available today. A lender's documentation requirements stipulate how applicants must provide the information and how the lender will use it. Historically, to receive a mortgage, borrowers had to present full documentation, such as pay stubs, W-2s and tax returns, on the standard loan application.
Keeping abreast of the market is key to brokers gaining loan approval from their lenders to satisfy their customers. When alternative documentation was introduced, stated-income loans were designed for financially complex borrowers. They were self-employed, had multiple jobs or had a variety of other factors. The stated-income program has since evolved into extremely flexible terms for qualification purposes. Now, these loans are for anyone, not just financially complex borrowers.
Bank statements and stated-income loans are the most-used forms of alternative documentation. Usually, formal verification requires borrowers' employers to verify employment in writing and their banks to verify deposits. Alternative documentation, on the other hand, is designed to save time and accepts copies of borrowers' bank statements, W-2s and pay stubs in lieu of formal verification. Bank statements come in various forms.
More recently, it is common to see stated-income programs not only for the self-employed but also for wage-earners. In some instances, there is no distinction between self-employed and wage-earner, as evidenced by stated-income/verified-asset (SIVA) or stated-income/stated-asset (SISA) programs. In both programs, income is stated on the application. Assets are disclosed and verified for SIVA, and disclosed but not verified for SISA. Using the combination of stated income and verified or stated assets, the lender will determine an applicant's likelihood and ability to repay the mortgage.
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