Mortgage Approvals : Documents You'll Need For Your Lender

According to the Federal Reserve's quarterly Senior Loan Officer Survey, it's getting easier to get approved for a home loan.

Between July - September 2012, fewer than 6% of banks tightened mortgage guidelines -- the fourth straight quarter that's happened-- and roughly 10% of banks actually loosened them.

For today's buyers and refinancing homeowners in Renton , softening guidelines hint at a quicker, simpler mortgage approval process; one which gives more U.S. homeowners better access to today's ultra-low mortgage rates. 

However, although banks are easing guidelines, it doesn't mean that we're returned to the days of no-verification home loans. Today's mortgage applicants should still expect to provide lenders with documentation to support a proper loan approval.

Some of the more commonly requested documents include :

• Tax returns, W-2s, and pay stubs : In order to prove income, lenders will want to see up to two years of income documentation. Self-employed applicants may be asked for additional business information. Borrowers earning income via Social Security, Disability Income, Pension or other means should expect to provide documentation.
• Bank and asset statements : To verify "reserves", banks will often require up to 60 days of printed bank statements, or the most recently quarterly reports. Be prepared to explain deposits which are not payroll-related -- banks adhere to federal anti-money laundering laws.
• Personal identification documents : To verify your identity, banks often require photocopies of both sides of your drivers license and/or U.S. passport, and may also ask for copies of your social security card.

In addition, if your credit report lists collection items, judgments, or federal tax liens, be prepared to discuss these items with your lender. Sometimes, a derogatory credit event can be eliminated or ignored during underwriting. Other times, it cannot.

The more information that you share with your lender, the smoother your mortgage approval process can be.

As the housing market improves and lender confidence increases, mortgage guidelines are expected to loosen more. 2013 may open lending to even more mortgage applicants.

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After A Pause, Mortgage Guidelines Resume Tightening

Mortgage guidelines appear to be tightening with the nation's largest banks.

In its quarterly survey to senior loan officers nationwide, the Federal Reserve uncovered that a small, but growing, portion of its member banks is making mortgage approvals more scarce for "prime" borrowers.

A prime borrower is described as one with a well-documented payment history, high credit scores, and a low monthly debt-to-income ratio.

Of the 53 responding "big banks", 3 reported that mortgage guidelines "tightened somewhat" last quarter. This is a tick higher as compared to prior quarters in which only 2 banks did.

46 banks reported guidelines unchanged from Q1 2011.

When mortgage guidelines tighten, it adds new hurdles for would-be home buyers in Renton. Tighter lending standards means fewer approvals, and that can retard home sales across a region.

Just don't confuse "tighter standards" with "oppressive standards".

While it is more difficult to get approved for a purchase home loan in 2011 as compared to 2006, the same basic rules apply:

• Show that you have a history of paying your bills on time
• Show that your income is sufficient to cover your obligations
• Show that you can make a downpayment

And the good news is that, once approved, you'll benefit from some of lowest mortgage rates in history.

Last week, the average 30-year fixed mortgage was below 4.250% for buyers willing to pay points, and the average 5-year ARM was below 3.000%. The 15-year fixed rate loan was similarly low.

For as long as delinquency rates remain high, expect mortgage guidelines to continue to tighten through the rest of 2011 and into 2012. Therefore, if you're a "fringe" borrower looking at a purchase in the fall or winter season, consider moving up your time frame. Changing guidelines may render you ineligible for a mortgage.

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