Whether it’s applying online, meeting a loan officer face-to-face or having a conversation over the phone about a new home loan application, you’re provided with a list of things the lender will need to see before underwriting the file. Because mortgage lenders follow the same basic lending guidelines they all ask for the same basic set of information. Sometimes though you might wonder why a lender asks for the things it does and may not make sense at first glance.
Why does a lender ask for pay check stubs covering a 30 day period? Why not just get the most recent one which shows the amount of the most recent pay check? Part of the approval process and one of the most important is calculating debt ratios. A debt ratio is a percentage of monthly credit obligations compared to gross monthly income. When a lender asks for a pay check stubs covering a 30 day period, it’s so they can calculate this ratio. If someone gets paid on the 1st and the 15th and only one pay check is presented, there’s no documentation showing gross monthly income, even if it might make perfect sense that both pay check stubs will show the same information.
Another thing lenders ask for relates to making sure you have enough money in a bank account to cover a down payment, closing costs and cash reserves. But the lender will ask for not just your bank balance but all pages of your bank statements for the most recent month, even if one of the pages is blank. Why provide a blank page of your statement? Let’s say your bank statements are 10 pages in length and you provide pages 1 through 10 but leave out page #10 because it’s blank. Your statement pages will read 1 of 10, 2 of 10, 3 of 10 and so on. But the lender won’t know if 10 of 10 is blank without seeing it.
Lenders will also ask questions about your credit report. When a lender looks at a credit report the most important thing they want to see is your payment history. But they’ll also look at the page that shows any recent requests for credit. If you’ve made a recent request for credit but that new account isn’t showing up on the report because it’s too soon, the lender can’t properly calculate your debt ratios. Even if you applied for a credit account but didn’t open it, you can still expect to provide an explanation letter about the inquiry.