Jumping through hoops for a US Home Loan

Post housing collapse, taking out a loan has become significantly harder.  Even for people who have enough assets and income to get a loan, the application process has become a tedious barrage of questions and demands for proof.  Think filling out an online job application with 10 different fields for one work experience, even though the relevant details are on your resume already.  Or filling out an online form that crashes repeatedly so you end up submitting similar versions of the same form many times.

What's the smoothest way to loan approval?

  • Before buying a house, you need to have enough cash to cover: down payment amount +12 months of mortgage payments + closing costs+buffer of a few thousand
  • The formula to a simpler approval process seems to be: employed, Credit score >650 , low debt to income ratio, have cash (the amount above) sitting in the checking account for >2months.
  • Documents required: Typically the requirements come in 2s:
  • *2yrs of a tax returns, W2s
  • *Most recent pay stubs
  • *2 months of bank statements, all pages, full account #s included -
Here's a sticky part I was surprised to learn: the lender has to  verify the source of income as well, so if you transferred money from different accounts, they will ask for the statements of those accounts.  You will have to explain your statement line by line, especially cash deposits.  If your statement is fairly clean for the last 2 months, this part is easier.  Finding the paper trail slows the process down, which has the knock on effect of delaying funding of your loan (ie the money for the loan doesn't come through).  if you can't close the loan in time, you might lose the house and your deposit!
Protip to secure your financial information?
You may feel a little uncomfortable, as I did, about sending docs over email.  I had to specifically ask, but most banks will send you an encrypted secure email chain or folder sharing system -these are secure ways to attach documents to email.
Self employed?  Sure you could get fired anytime at a company, but if you have the capability to generate income on your own, you will be welcomed to a new level of suspicion.  Any income that hasn't been consistently collected for over a year, you can forget about.  If in a partnership, provide 2 yrs of partnership returns, your business license, etc. The requirements vary, but one of the banks also asked for current profit and loss statements for the year.  Any sudden drops or jumps in income will be red flags, and some banks may not even recognize more than a 20pct increase in income from one year to the next.

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