Types Of Documentation    

So what happens if the money you want to use for a down payment does come from your mattress?  Or what if you’re making enough money that you know you can make your payment, but you’ve only been at the job for 6 months?  Or the bulk of your income comes from rental property income that you write off as a loss on your taxes every year? 

The scenarios in which you may be able to pay for a house but just can’t seem to prove it sufficiently for an underwriter are endless.  Years ago, lenders recognized this, and so created a category of documentation in which the risks associated with various degrees of disclosure are offset by various levels of price (rate). 

The system is called Alternative Documentation mortgages, the category of mortgage loan in which income and assets are either “stated” (you state an amount that will allow you to qualify) or “no-documentation” (they don’t ask, you don’t tell) or some combination or variation of the two.  While there are additional options to those presented here, these are the standards.  Most any income and asset situation will be answered to below.

Full documentation: Both income and assets are disclosed and verified, and income is used in determining the applicant's ability to repay the mortgage . Formal verification requires the borrower's employer to verify employment and the borrower's bank to verify deposits. Alternative documentation, designed to save time, accepts copies of the borrower's original bank statements, W-2s and paycheck stubs.

 

Stated Income/Verified assets: Income is disclosed and the source of the income is verified, but the amount is not verified. Assets are verified, and must meet an adequacy standard such as, for example, 6 months of stated income and 2 months of expected monthly housing expense.

Stated Income/Stated Assets: Both income and assets are disclosed but not verified. However, the source of the borrower's income is verified.

No Ratio Test: Income is disclosed and verified but not used in qualifying the borrower. The standard rule that the borrower's housing expense cannot exceed some specified percent of income, is ignored. Assets are disclosed and verified.

No income: Income is not disclosed, but assets are disclosed and verified, and must meet an adequacy standard.

Stated Assets or No asset verification: Assets are disclosed but not verified, income is disclosed, verified and used to qualify the applicant.

No asset: Assets are not disclosed, but income is disclosed, verified and used to qualify the applicant.

No income/no assets: Neither income nor assets are disclosed.