If the loan originator’s job is to guide you halfway to apply for a mortgage – like a sherpa or a car salesman, depending on what kind of personality you get – it’s the underwriter’s job to stop all that excited momentum and meticulously examine every detail of the loan application with a magnifying glass . This person determines whether the loan is a good proposition or too risky from the lender’s point of view. As such, there are many reasons they could slow down your schedule.
Typically, they need more documents or information to meet the terms of the mortgage. They may also need an explanation of things in your credit or employment history – not only from you, but other parties. Other times, they assess the property you want to buy, as well as the contract between you and the seller.
You probably won’t be able to predict everything an underwriter will ask for, but you can help speed up the process by trying to anticipate their needs and prepare for them before you are asked.
Here are some of the things that a subscriber you may need during the loan review process:
1. Copies of bank statements
This is one of the most common requests, although it is usually required early on, such as when shopping for a prior approval. The loan officer can only ask for two to three months at this time. As you go down the road, the underwriter may ask for more – up to two years, especially if you take out a bank statement loan (a loan that uses bank statements as proof of income).
Alternatively, companies that have opted for electronic applications may require you to link your bank account to their system so that they can directly access statements.
2. Tax returns – or IRS transcripts
Two years of tax returns are the norm, and these are also usually requested initially for pre-approval. However, for self-employed loan applicants, the underwriter will often want to obtain transcripts directly from the IRS once the application reaches their office.
3. Copies of 1099 and / or W-2
You can ask, “If an insurer already has my tax returns, why does they also need copies of my W-2 or 1099 forms?” It is for them to know, and for you not to argue. In fact, never argue with an insurer.
4. Letters of explanation (LOX)
If the underwriter detects something curious in your financial records – for example, money transfers, something unusual on your credit report, deposits from a source that is clearly not your primary employer – they may ask you for a letter of explanation.
5. Employment verification
This is something that a lender will often ask directly from an employer. They usually inquire about the likely future of your position as well as your salary.
Note that some lenders will request these letters from self-employed as well as full-time employees. If it makes you uncomfortable asking for a referral or testimonial, it isn’t. It would be requested from the accounting department and would simply confirm your current or past 1099 contractor / supplier status.
6. Letter from an accountant certifying self-employment
For self-employed workers, your CPA can quickly become your best ally when applying for a loan. All the meticulous bookkeeping and documentation they have done for you over the years will earn you immediate credibility in the form of third party audit letters. The letter certifying self-employed status is usually the first one you will need.
7. Income statement of an accountant
Many underwriters ask for it as an additional document for self-employed people or small business owners, especially if you are applying for a bank statement loan. Income statement statements allow underwriters to see your annual balance sheet beyond the numbers you provide for tax purposes. Ideally, all it takes is a simple request to your CPA, and you would only have to pay it for as long as it takes to prepare it. Keeping your monthly books up to date will be easier on all parties than letting things pile up until taxes are due.
Note that if you do not have a regular accountant, you can prepare the income statement using accounting software and / or a template, but underwriters may require it to be audited by a CPA. independent certified.