Why does my lender need so much information???

This is about the time that many buyers begin to wonder why the lender is requiring so much information. It can be very frustrating. First you’re asked to supply one item, then, when they get it, they want more items or more documentation!

It’s not the lender’s fault. The blame goes back to all the Savings and Loan losses incurred by the United States Government in the 1980’s. Let me explain...

The Federal Government suffered huge losses in the 1980’s when home lenders could lend money to just about whoever they wanted. In that era many loans went bad. The Federal Government had to step in to repay all the depositors in those institutions. This cost (and is still costing) taxpayers billions of dollars.

Now, every lender (whether a bank, mortgage company or Savings and Loan) is required by the Federal Government bank regulators to write their loans to rigid specifications. This is to protect the people who have their money saved in bonds and savings accounts.

What this means to you is that your file must contain written explanation or documentation for every little item or question about your past and present financial history. All lenders are regularly audited by Federal Bank regulators. If they’re caught making loans without all of the required verifications and written explanations, they’re in big trouble!

So please don’t get upset if you’re asked to supply more information about your financial dealings, credit or employment. Federal regulations are no picnic for the lender either. They’re just doing their job. Every lender would be asking you for the same documentation.

Acceptable source of funds to close

Before your loan can be submitted for approval, the lender needs to document exactly where the money is that you’ll be using for down payment and other costs. A vague answer such as “I have it at home under the mattress” doesn’t cut it with the Federal bank regulators!

Explanations that WON'T pass Federal regulators...

“My cousin George is repaying me the $1,000 that he owes me.”
This one will work only if we can prove, in writing and by canceled checks that you actually loaned George the money.

“I sold all of my old Elvis albums to a guy at the flea market for $850.”
This will work only if you can prove that you owned the albums, that they were really valued at $850, and that you really sold them.

“I borrowed it against my Master Card.”
This one only works with one 100% financing program we use, or if you borrowed it at least two months before you need it to close and put it in your bank account for “seasoning.” But you can use a “gift letter” from a very close friend or family member for the down payment.

The Federal Government requires that every single penny of your “funds needed to close” must be accounted for with written verification. You must explain in writing and with written proof any money you have received over the past three months.
If you need any advice on “source of funds” or gift letters, please give me a call. I can help.

It’s always a good idea to check with your lender’s loan processor on a weekly basis. They can’t predict the future, but they can tell you what’s happening and what they’re waiting for.

P.S. If anyone at the lender talks “lender-lingo” to you, just call me and I’ll get you a clear English translation. Please call me anytime I can be of assistance. That’s my job.

If you'd like a referral to a local lender you can trust, just call me at 303-587-3509 or email me.