Verifications Required By Lenders During The Mortgage Process
This Article Is About Verifications Required By Lenders During The Mortgage Process
There are multiple verifications required by lenders during the mortgage application and approval process. With all the mortgage guidelines put in place after the real estate crash of 2008, mortgage lenders must complete numerous verifications to approve a borrower for a mortgage loan. In this blog, we will detail some of the main verifications required by lenders during the mortgage process. We will also detail some significant changes with verifications to the Internal Revenue Service or IRS. Gustan Cho Associates are a well-oiled mortgage machine and are here to answer any questions you may have to qualify for a mortgage. Now let’s go over some required verifications during the mortgage process.
Internal Revenue Service Income Tax Verifications Required By Lenders During The Mortgage Process
A mortgage lender must verify some key information with the Internal Revenue Service (IRS). This used to be taken care of with a form called the 4506-T form which has recently switched to the 4506-C form. We will now dive into the changes. The reason the form has changed is the Internal Revenue Service is now implementing Optical Character Recognition or OCR. This is intended to incorporate a program that will read the form as intended. These changes will be implemented starting in October 2021.
In order for the IRS to read the 4506-C form the following will be needed:
- If the form is filled out by hand, the handwriting must be legible in order to be processed by the IRS
- If the form is completed electronically, the fonts must be large enough to be clearly read by the OCR software
- If the font is too small, the IRS will reject the document
- If the borrower has more than one address in the past two years, the IRS will proceed for filling the request as long as at least one address is a proper match (a major update to the IRS verification process)
These changes in Optical Character Recognition should help speed up the IRS verification process. Numerous times in the past, the 4506-T form has delayed the mortgage process. These changes should improve IRS turn times and help smooth out the mortgage process.
Employment Verifications Required By Lenders During The Mortgage Process
Verification of employment:
It is no secret that a mortgage lender must verify your income to qualify for a mortgage. This comes in the form of verification of employment. There are a few different types of verifications of employment. Mortgage agencies such as Fannie Mae and Freddie Mac will currently accept automated verifications of employment if they have the required information. Many third-party services such as “the work number” offer this service. The automated verification of employment is a great tool for salary or hourly employees but can be difficult to use for employees who make the bulk of their income from bonuses or commissions. In these scenarios, manual verification of employment is required.
The operations staff of your mortgage company will reach out to your employer directly to get the required information.
Mortgage Verifications Required By Lenders During The Mortgage Process
Verification of mortgage:
Verification of mortgage is done to confirm you have not missed any housing payments and qualify for your next mortgage loan. If your mortgage tradeline reports the credit, that information will work in place of verification of mortgage. However, many of our clients have their mortgages protected by the bankruptcy court or maybe have a private mortgage loan with a family member. In that case, your mortgage processing team must verify on-time mortgage payments to qualify for your next mortgage loan. This is done with a specific form that was sent directly to your lienholder.
Rental Verifications Required By Lenders During The Mortgage Process
If you are not paying a mortgage, there is a good chance you are paying rent. If you are currently renting from a private management company, the mortgage lender may verify your payment history directly through them. If you are renting from a family member or a private landlord, a manual verification of rent is required. Typically, sending your payment history via bank statements is the easiest way to complete this verification. Most mortgage loans require a 12-month verification of rent. Some programs require up to 24 months of on-time rent payments.
Verification Of Benefits
Verification of benefits:
Some individuals applying for a mortgage loan may be retired or on a fixed income. So, they do not currently have an employer. In this case, the lender must complete a verification of benefits to verify the correct monthly income used for qualifications. This is typically done with an awards letter from your pension or benefits provider. The lender must also see the deposits on your bank statements correlating with the awards letter.
Value Verifications Required By Lenders
Verification of value:
This is also known as an appraisal. A third-party appraisal must be completed on most mortgage transactions. There are select instances that an appraisal waiver is acceptable. An appraisal waiver is verification of value. Data for an appraisal waiver information comes from information from Fannie Mae and Freddie Mac. Your overall loan qualifications will determine an appraisal waiver. For example, if you have a high credit score and a low loan to value, you have a good chance of getting an appraisal waiver.
In an instance where you do not get an appraisal waiver, an appraisal must be completed. A third-party appraiser will be sent to the property for an inspection. Photos will be taken and then the appraiser will complete the full report based on sales in the area. That value will determine the specifics of your loan. The appraisal can be a giant step in the mortgage transaction. In the event of a low appraisal, sometimes the deal is lost. In the event of a higher appraisal, your loan will still be determined based on the purchase price but you are walking into some equity.
Third-Party Public Records Verifications Required By Lenders
Public record search – The public record search is a critical part of every mortgage loan. The public record search is looking for foreclosures, judgments, liens attached to a borrower, and bankruptcies, etc. These items may or may not report to the credit bureaus and can be a deal killer. For example, if you have a judgment that has not been satisfied, this may ruin your chances of qualifying for a mortgage loan. There are very specific rules around judgments and obtaining a mortgage loan. Many derogatory marks are considered to be public records. Your title company will complete a public record search. Sometimes this process happens towards the end of the mortgage underwriting process and can be a last-second denial. It is important to understand public records and how they can affect your mortgage qualifications.
Verifications may not sound important, but they are a requirement on every mortgage loan. Since these verifications take time, it is important to utilize a highly-skilled mortgage team when looking for financing. Our processing staff is top-notch and is well-versed in obtaining all verifications.
Gustan Cho Associates are expanding in more states and will continue to offer top-notch service to our clients. We are available seven days a week for any mortgage-related questions and look forward to helping you and your family achieve homeownership or refinance your current mortgage loan. For any general mortgage questions or questions surrounding verifications, please contact Mike Gracz on 630-659-7644 or send an email to [email protected].