Loan processing has long been one of the most misunderstood aspects of a mortgage. Many have thought it was akin to voodoo, when actually processing is simply verifying the information you supplied on your loan application and then assembling & presenting this information to the Underwriter in the best possible way. (proper presentation is the weak link at most mortgage companies)

There is nothing inherently hard or mysterious about it. Basically a mortgage company has to verify (with no gaps):

2 years address history

2 year job & income history

Money presently in deposit institutions as well as the average balances (average balances show how long the money has been in the account and ensures the money isn't borrowed)

Acceptable Credit history

 

Stated that way it doesn't sound too hard or complicated does it?

Traditionally there have been 3 levels of loan processing:
FULL, ALTERNATE & NO documentation.

FULL DOCUMENTATION is the traditional way of verifying all your information by paper. Verifications need to be mailed to your present and ex employers, landlords, and deposit institutions. This type of processing takes the longest, but gives the underwriters the greatest level of comfort.

ALTERNATE DOCUMENTATION is really a Full Doc loan, but instead of contacting your employer, bank, landlord, etc. for documentation the underwriter will accept documentation already in your possession.

For instance you may furnish us with 2 months worth of pay stubs and the last 3 months bank statements to verify your income and bank balances. You can't do this in every situation but it does save time where applicable.

This is the most common type of processing.

But let me illustrate one of the problems with Alt Doc. If you are saving money to close, your closing funds may not be reflected on your latest bank statement. If that were the case we would either have to wait a month for a bank statement that shows enough money to close or still do a paper verification. If, on the other hand, your statements show more than enough money to close and adequate reserves then Alt Doc would not be a problem.

NO DOCUMENTATION is just what it sounds like, the underwriter simply accepts your word on some of the information furnished and does not ask for further documentation. There are No Income loans (NIV), No Asset loans (NAV) and No Income No Asset loans (NINA). Obviously these are the riskiest type of loan so they usually carry rates higher than a Full Doc loan. There is an old lenders saying "The higher the risk, the higher the rate" which means the NINA is the most expensive of the 3.

Basically the more information you allow the mortgage company to verify the more comfortable the underwriter will be with you and the lower your interest rate and the better the terms can be. The traditional rates you usually see quoted are for FULL or Alt Documentation loans.

A NEW METHOD OF UNDERWRITING HAS BEEN ADDED WHICH HAS CHANGED MANY OF THE PROCESSING RULES.

Automated Underwriting (AUL) or Computerized underwriting has been added to the traditional human underwriting. Fannie Mae and Freddie Mac say they can match a borrower's profile against tens of millions of loans with known performance levels and get a more accurate idea of how YOU will pay.

The neat thing about this type of underwriting is that the computer is sometimes asking for less information to be documented during processing than what a human would ask for. Sometimes AUL loans come back asking for very Limited documentation and yet still give you the lower Full Doc rates.  Unfortunately real, live PEOPLE still have to look at the file as well and they can sometimes add conditions.

Let me give you an example, if you are self employed or commissioned in the past you would have had to prove up a 2 year income history per tax returns. With AUL there is the potential to be asked to furnish only a recent computer generated paystub, the most current bank statement and a credit report.

Credit scores and assets are a big key to a good AUL recommendation so this very limited documentation doesn't happen to everyone. This is a big reason why you need to work to get your credit scores as high as possible.

Another plus to AUL is that if Fannie & Freddie have done enough loans in a given neighborhood AUL might not ask for a full appraisal. They might only ask for a drive-by appraisal which can save you time and money. A drive-by appraisal is not as accurate, so Sellers love the drive-by but I still prefer the certainty factor of a full appraisal for my own personal purchases.

Some Mortgage companies are calling AUL a PreApproval, BUT IT IS NOT!
A positive AUL finding is only a recommendation that IF everything checks out EXACTLY as the application was filled out and if nothing such as income, bank balances or loan balances has changed in status then the computer recommends the underwriter look on the app favorably. A human underwriter still has to look at your documentation and be sure everything matches and there are no additional questions raised by the documentation - such as that Credit Union deduction on your pay stub. Is it a savings deposit or is it a payment on an undisclosed debt? In other words a human has the last word so proper presentation of your finished file by the mortgage company is critical.

What is best for you? No one can know without having a lot of detailed information about your situation. Every situation is different so give us a call and we can gather your data and present you with your options.