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With rates trending down during the past few weeks I have been refinancing my home. Like millions of other homeowners, I regard refinancing with mixed feelings -- lower rates are wonderful but the details and requirements associated with the process seem endless and numbing.
You know with absolute certainty that lenders will want an assortment of paperwork to complete a loan application. Given this inevitability do not fight the monster, embrace it: Get a file folder, a big one, and use the six-step checklist below to assemble the documents you're most likely to need.
Step 1: Income
Get copies of your two or three most recent payroll stubs, your two latest federal tax returns, and your most recent W-2 forms. As you get new payroll stubs during the application process, keep them in the file.
If you're self-employed you will likely be required to provide year-to-date income and expense estimate. Indicate which figures are "actual," which are "estimated" and be conservative in your reporting.
Every household has a few financial oddities. For instance, if you started work in May your W-2 will not reflect a full year's pay. If you have a partnership interest or other complex holding, you'll need documentation. Be prepared to explain special situations and provide documentation as required.
Step 2: Debts
Make a list of your debts -- who is owed what, the total amount of each debt, the required monthly payments, account numbers and contact information. An easy approach is to make copies of your latest payment stubs for auto, credit card, mortgage and other debt -- such stubs have account numbers which the lender can use to verify information.
If you have student loans, show the total of what you owe, to whom, account numbers, and what you pay each month.
Step 3: Assets
Copy your most recent IRA, Keogh, mutual fund and other account statements -- they have dollar totals and account numbers. List all the real estate you own by address and estimated value. Be sure to emphasize "estimated" because without an actual sale the value of real estate is debatable. Be restrained -- lenders like happy surprises, such as an independent appraisal which shows your home is worth more than your estimate.
If you own investment real estate, provide leases for all properties.
Step 4: Credit
Your lender will obtain credit reports from the three leading credit reporting agencies (CRAs), along with credit scores from each bureau. Several states (Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey and Vermont) require credit reporting agencies to provide free credit reports to residents. Under the federal Fair Credit Reporting Act (FCRA) reports may also be available without charge if you have been refused credit, denied a job or insurance under certain conditions, believe your report is inaccurate, or are now unemployed (and expect to seek unemployment benefits) or on welfare. Also under FCRA, a credit reporting agency can charge up to $9 for a copy of your credit report -- but in some jurisdictions reports may be available at lower cost.
Your lender will order credit reports directly, but for your own information such records can be useful -- especially if you see items which are factually incorrect or out-of-date. It's good to get credit information several months before applying for a mortgage so you have time to contest any errors.
If you have a late payment -- or a missing payment -- be prepared to explain what happened, if you can. Remember that lenders do not expect perfect credit.
Credit scores are essentially a way to "grade" credit reports. There are different credit score services and they will often produce a range of scores. As well, individual lenders and loan programs value credit scores differently. Under one program a score of 680 may be fabulous while under another 720 may be required to get the best rates.
Step 5: Gifts
If there's a financial gift involved in your transaction it's a good idea to explain where the cash is now located and to have a letter from the giver stating that the money is really and truly a gift and that no repayment or interest is required or expected.
Step 6: Help Yourself
During the application process, do not buy a car, obtain a new credit card, or rack up vast amounts of new debt. Make all payments in a full and timely manner. Expect lenders to re-check credit reports just before closing. Provide the name and account number of your insurance provider. If your loan requires an appraisal, clean up the house as you would before the arrival of an important visitor.
Make copies of everything you give to your lender -- and mark down the date provided and how delivered -- by hand, mail or electronically. Keep your lender's good faith estimate of closing costs and any rate-lock commitment in your file. If you're refinancing, dig out your last set of settlement papers -- the title policy may help you get a "re-issue" rate on new coverage and the HUD-1 form can be important for tax purposes.
Will these six steps save you time and irritation?
Our loan application took about 30 minutes and only one piece of paper was missing -- so we scanned that one and sent it to the loan officer by e-mail. All told, the entire experience was about as painless as refinancing gets -- for both us and the lender.
The result? Our loan was quickly approved -- really approved, not "approved subject to" 1,400 conditions and 290 requests for additional paperwork.
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