A few years ago, many lenders tried to make things easier for borrowers by limiting the documentation needed for mortgage applications. But, today, most lenders require applicants to make a strong case that their credit is good.
"Being prepared to fully complete a loan application and provide supporting documentation" is the key to success in the current mortgage market, according to Sylvia L. Reynolds, head of marketing and development for Citicorp Mortgage Inc. The St. Louis-based company is a leading lender, with branch offices throughout the nation.
The trend to so-called "low-doc" and "no-doc" loans reversed itself because the real estate market soured and lenders are more worried about losses on mortgages, Ms. Reynolds said.
"In the '70s and '80s, housing values were going up rapidly and if the worst happened it was likely the lenders would be protected if they had to sell homes in foreclosures," she said. "Now we're seeing very modest appreciation or even depreciation in some areas, and the lender isn't as well covered. Underwriters are now weighing more heavily the borrower's credit history and income."
Typical documentation required when applying for a mortgage loan is:
* A contract of sale, signed by all borrowers.
* Social Security numbers of all borrowers.
* Two months of recent bank statements to verify account numbers and balances of checking and savings accounts.
* A list of stocks, bonds and mutual-fund shares owned by the applicants, with current values. Applicants who have an account with a stockbrokerage should include the most recent statement.
* A list of other assets, including IRAs, vested amounts in retirement plans, surrender value of life insurance policies and real estate already owned.
* Copies of W-2 forms and the tax return from the previous year.
* Recent pay stubs for all borrowers.
* List of credit-card accounts, with outstanding balances and lines of credit for each.
* List of auto and personal loans, with outstanding balances and account numbers.
* If alimony is a source of income, a copy of the divorce decree.
* For self-employed people, a profit-and-loss statement, current balance sheet and possibly copies of business tax returns.
Borrowers should also be prepared to pay for an appraisal, credit report and any other fees due at application.
Some lenders might also want written verification of employment and number of years with the employer, and written verification of bank deposits.
Prospective buyers can smooth the entire home-buying process by getting a pre-purchase commitment from a lender, Ms. Reynolds said. A commitment or credit approval means the lender will provide a loan up to a specific amount when a satisfactory home is found.
A commitment can put most of the paperwork behind the buyer, and also lets the buyer know how much can be spent for the home. In addition, a commitment can give a buyer some extra bargaining power -- sellers often prefer to make a sure sale rather than one that is contingent on the buyer getting financing.
Since pre-purchase commitments differ with lenders, buyers should find out exactly what the terms are.