Documentation: What VA Lenders Are Looking For
It's standard procedure for all mortgage loan application, the gathering of paperwork. Sometimes lots of it. When you first speak with a VA loan officer about a possible VA loan one part of the conversation will be about providing specific pieces of documentation needed in order to evaluate the loan application. Most VA lender websites have the checklist of things you'll need to provide and even some loan officers have the list of needs on the back of a business card as a reference. But what you provide the lenders gives them more information than you might first expect. What will you be asked to show? Basic information about your employment, income and how much cash you have available to close on your transaction. And to do that, you'll provide pay check stubs, W2s, possible income tax returns and finally bank statements. What does the lender want to see?
Pay Check Stubs
Your ability to repay the new mortgage is based in part on your current monthly obligations, your gross monthly income and the new mortgage payment. To arrive at your monthly income you'll be asked to send copies of your most recent pay stubs covering 30 days. If you get paid once per month, you'll provide one pay stub. The first and the fifteenth? Two pay stubs and if you get paid every other week you'll need to provide your three most recent pay stubs in order to cover the required 30 day period.
The first item of importance is your gross monthly pay. That amount is used to calculate your debt to income ratio. But the lender also compares your monthly amount with your year-to-date calculation and compares them. The year-to-date total is re is at least a two year history of the extra pay and understands the income will continue for at least two more years, the a cross-check that should coincide with monthly pay. If your gross monthly check (the amount before any withholding) is $6,000 and it's November, the VA lender wants to see 10 months of earning, from January through October adding up to $60,000.
Often however these two numbers don't add up. There's a discrepancy somewhere and the lender needs to resolve that discrepancy before the loan application can move through the approval process. If there are extra amounts, there should be a line item on the pay check stub defining what the additional amount is for. Many times this extra income is from Sick Pay not used or perhaps some left over Vacation time. What will a lender do with this extra income?
Unless the lender can make the determination that theincome may be used for qualifying. However, if the amounts are not regular and only occasional, the amounts can be deducted from your gross pay, reducing the amount you can qualify for.
Your W2 forms from not just one but two years will be required and included with your VA loan application. A lender will compare last year's total income with year to date and monthly totals reflected on the pay stub. Again, the lender looks for consistency here and if there's a falloff in income, the lender will need more information from you.
Say that you made $50,000 last year but this year's pace indicates $40,000 in gross income. What might the lender do? Such a decrease represents a 20 percent drop and can cause concern. Will there be another drop next year affecting the ability to pay the mortgage?
Does the W2 show more than regular pay? Many employees who work by the hour get overtime which is listed on the pay stub. By comparing regular hours and overtime hours, the lender can use future overtime pay because the overtime has a history and is expected to continue.
Lenders look at bank statements to make sure there's enough money in your accounts to cover your closing. That's the initial reason for bank statements. Another reason is to compare the dates listed on pay stubs with an accompanying deposit it the bank account. If the net pay on the 15th is $3,259.74 the lender looks for a deposit on or after the 15th in the same amount.
Lenders also look for random deposits that don't have a listed source. For instance, on the 8th there is a deposit for $757. Where did that come from and why does the lender care? Even if that $757 is not needed to help close the loan, the lender wants to make sure the amount wasn't the result of another loan or borrowed from a third party. All monthly debts need to be accounted for. The appearance of random deposits and cross-checking income are two additional reasons VA lenders review bank accounts. Be prepared to document any discrepancies.