Why All the Paperwork for Home Loans?
In the years leading up to the financial crisis, some lenders made mortgages to consumers who could not pay them back resulting in delinquencies and foreclosures when the market shifted. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires all lenders to now take more into consideration when making a mortgage loan under its Ability to Repay Rule.
When you apply for a mortgage loan, you will need to give the lender certain financial information. The lender is required to check the information using reliable documents, such as W-2's, paystubs and bank statements or third party providers to verify your ability to repay the mortgage loan. The lender generally must consider eight types of information:
- Your current income or assets
- Your current employment status
- Your credit history
- The monthly payment for the mortgage you are requesting
- Your monthly payments on other mortgage loans you get at the same time
- Your monthly payments for other mortgage-related expenses such as property taxes, insurance or homeowners association dues
- Your other debts such as car loans, student loans and credit card debt
- Your monthly debt payments compared to your monthly income (debt to income ratio) and how much money you have left over each month after paying your debts.
It's a lot of data to collect. Yet, the information you provide and your lender verifies will help make sure you get a mortgage loan you can afford and help make sure that responsible lenders aren't forced to compete with reckless lenders engaged in risky practices.
If you're thinking about a home loan, we'd love to help.