More lenders are scrutinizing mortgage applications since the financial crisis fallout, which has triggered fears of borrowers who will default or walk-away from their mortgage or mortgage fraud.
Here are the triggers that may cause the most lender scrutiny of loan applications, according to a recent article at The New York Times:
Large deposits of money – Lenders are required by federal regulators to confirm that funds in an account come from bona fide sources, like a gift from your grandmother for the down payment. What constitutes a large deposit? If you earn $5,000 a month and deposit an extra $10,000 beyond your paycheck, that may be considered oversized. Of course, if you were just married and received a bounty of checks as gifts, you might want have your marriage license on hand as proof, when you are providing your bank account information.
The home’s new address – Buyers who are purchasing a primary home three hours from where they work may also draw increased scrutiny from lenders, according to The New York Times article. Borrowers may even need a letter from their employer stating that they work from home a few times a week. Likewise, a couple with three children who are buying a one-bedroom apartment may be scrutinized about whether this will be their principal home. That’s because lenders may want to ensure the borrower plans to be an owner-occupant and not buying the property to rent or flip, which must be disclosed.
New or Undisclosed debts – Borrowers should avoid taking on extra debt when applying for a loan — so they may want to wait to buy all the new furniture. Extra debt can be a red flag to a lender when financing a home. It could even jeopardize closing on a new home if the debt pushes the borrower’s total debt levels beyond lender-accepted limits.
Income Issues – If you disclose that you earn twice what the average person in your occupation earns, you may need to document that discrepancy. Or if you used to be an independent contractor and were recently hired as a full-time worker, that might raise concerns. It is relatively easy to invent false documents that inflate incomes, so lenders routinely check with the Internal Revenue Service and other sources.
Source: “Mortgages: Triggers of Lender Scrutiny,” The New York Times (Nov. 3, 2011)