Why Do Lenders Need so Much Documentation

“Seriously, the lender is asking for a ton of stuff. Is this normal?

As a lender, I get this question all the time. Documentation is a by-product of the Mortgage Meltdown (although I hate that term), requiring all points to be verified, sourced and documented. I use the analogy today that; think of Underwriting like a Table. A table had four legs and if one leg is not attached then everything slides off the table. A Perfect Loan file is a table, and requires all legs to be securely attached. The four legs of documentation are credit, employment, income and money. You need all of these to qualify.

In the past you can have money and credit and buy a home. That was back in the day of stated income loans. They don’t exist today. You have to have all table legs attached and this requires documentation. For example, today we have to verify that the Tax Returns you gave us are the same ones you gave to the IRS. The money in your bank is all verified and sourced from every deposit. That your credit, addresses and inquiries are explained. This can seem like over kill. A good secondary article that I refer clients to is from Forbes almost a year ago, click here to read this article. That tells me that not many people are talking about this extra burden on buyers and the documentation requirements.

If anything my hope is that this article can help inform you of the process and that when we as lenders ask for documentation it is for a good reason. Does that mean that it takes a long time to close? The answer is NO. We close in two to three weeks all the time. The key is that we know and have been dealing with high documentation requirements for a few years. We know the documentations we need so when we ask for them and get it for us quickly, then a quick close is possible.

Also, the pre approval process is so important. By doing the pre approval process upfront, then we can educate you on the process and set the correct documentation needs up front to avoid last minute panicking and collecting of documents.
Matt Baker NMLS #190779
Colbalt Mortgage


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