Getting a mortgage, now vs. then

“Then” being before the financial world imploded in 2008. Back in those days, as we all know by now, it was possible for people who had no business getting loans to get loans.

Oh, how the pendulum has swung. I’ve written before about how some new rules in the mortgage world are downright silly. But instead of whining about silly new rules today, I’ll fill you in on some new underwriting practices so that if you’re in the purchase market, you don’t accidentally screw up your loan right before closing.

Back in the day, it was standard practice for lenders to get two months of bank/brokerage account statements from borrowers when the loan application was filed. Now, they’ll start with two months of statements and also get the most current statements right before closing. Not only that, the borrower will have to verify that all deposits are payroll; if not, expect the third degree about where that $10,000 check came from.

As another point of comparison, let’s see how lenders handle credit reports now. Old practice: run a borrower’s credit at the time he or she files the loan application. Now, lenders will run a second credit report right before the close of escrow to make sure that nothing ugly has found its way onto the credit report: no late payments, no new ginormous debt, no credit disputes or other derogatory information. This one reminds me of a story I heard from an escrow officer who was handling a closing, guiding the buyers through their loan documents, when the mortgage broker flew into the office and said, “I hope all that furniture you just bought fits in that new speedboat you just bought, because you’re not getting your house!” Ouch.

Another change is in how lenders verify employment. Old way: paystubs with the loan application. New way: a phone call to the employer immediately before the close of escrow to verify that the buyer is still working. Gotta be bringing home the bacon to get a home for that bacon to go to. (Apologies to all my English teachers for the construction of that sentence.)

Last, tax returns. Old way: borrowers submit copies of their tax returns with their loan application. That still happens, and now the additional step is that the lender requests tax transcripts from the IRS to make sure that the returns are accurate.

Long story short, if you’re in the market for a mortgage, don’t change jobs, quit your job, buy a lot of stuff, get any big money gifts, or decide to move your money between your accounts.