Preparing Your Financial Docs

Getting your financial documentation in order for a mortgage is quite an undertaking.  I can't imagine what it must have been like before we could all pull our statements off the internet.

This post is designed to fill you in on what your banker or broker will be looking for in order to get your mortgage approved then cleared to close.

You can be assured that they'll request two months of statements from your checking, saving, investment, retirement, credit card, and student loan accounts.  If you already own a home, they'll want a copy of your original promissory note and recent statements.

Our process got a little gummed up due to a few things that could have been avoided:

• Cash deposits - if you deposit a large check (depends on your situation, but we got flagged for amounts >$500), they will ask for a letter of explanation and for you to paper trail the source (copy of check or deposit slip).  In our case, we got flagged because Pamela wrote me checks to be the holder of the funds for the down payment.  These were easy to paper trail.  We ran into trouble with a cash gift that Pamela's parents deposited into her account.  The broker requested Pamela's parents checking account statement along with a signed gift letter stating that we didn't have to repay it.
• A note on gifts - our broker told us that you can have your application denied if you receive a substantial gift.  The thinking is that the banks don't want to loan people money who can't make a down payment on their own.  So keep this in mind if you might need help on your down payment - if the gift is made far enough in advance, it won't show up on recent bank statements.  Otherwise, gift givers should wait until after you close.
• I also received regular monthly checks from our renters in PA (see rental property).  When my Brother and I came into possession of the house, we were never put on the mortgage so it didn't come up in my credit report.  Needless to say, we should have discussed this more up front.  As we were hoping to close, they asked for the original promissory note - from 1986.  I had my mother mail me a book of documents that she had on the house, but the note wasn't among them.  I was able to get a copy from the mortgage holding bank, but this took time.
• Loans from retirement accounts - this was probably the first situation where online statements caused problems.  Pamela's pension fund is not the most technologically savvy, so when a large direct deposit showed up in her checking account (the pension loan) we were unable to provide a statement.  She called the administrator only to be told that statements are printed quarterly.  They offered to write a letter confirming the loan, but this would require time to process.  In the end, she printed a screen shot of the website and wrote a letter explaining the situation.

Your broker will process through all of these documents and then provide you with a Commitment Letter.  This essentially says that the lender thinks you are worthy of the mortgage you are asking for and will outline the rate and the terms.  The Commitment Letter will come with conditions.  This is the lender saying "we'll give you your loan based on what you gave us, but we see a few things that we want more information on.  If we don't like what we see, we aren't obligated to give you the loan."  Once you complete those conditions, you may be "cleared to close" or the lender may provide you with more conditions.

Besides being mindful of the issues we ran into listed above, I would suggest you stay on top of whoever is processing your loan.  In fact, being proactive is the best option.  If you have received a gift, get the documents in advance.  You don't want your broker to be doing one final run through and come across something he/she missed that will take days to complete.