Background check: Verbal verification of employment and other intrusions | Mortgage Rates, Mortgage News and Strategy – The Mortgage Reports

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You’d think supplying your pay stubs and bank statements would be enough to prove to mortgage lenders that you own and earn enough to qualify for your home loan. And that used to be true until technology made it easy for anyone to dummy up phony documents. Expect a verbal verification of employment and more.
Verbal verification of employment is just one example of the potential intrusions into your life that are part of many mortgage applications.
Before technology streamlined the mortgage application process, mortgage lenders would send Verification of Employment (VOE) forms to employers to get information about your position, income and job stability.
But then automated underwriting systems (AUS) stopped requiring this in most cases, only requiring what was called “alt doc” from most applicants — copies of their pay stubs and W-2 forms.
Today, in the wake of the Great Recession and the proliferation of poorly-underwritten loans, lenders must comply with the Ability to Repay (ATR) rule, and that means making sure you can afford your mortgage. So they may call your employer and make sure that your documentation reflects your true income and status.
Fannie Mae, Freddie Mac or government-backed loans require lenders to confirm the accuracy of the documents you provide when applying for a home loan.
Fannie Mae, for example, insists your lender calls your employer no more than 10 businesses days before closing. That call will confirm you’re still employed under broadly similar terms to those when you first applied. Your application will be disrupted if you don’t work there anymore or are making significantly less money.
Job change? You can still get approved for a mortgage
Fannie’s not messing around here. It insists lenders fully document the call. Also, it says they must independently verify the phone number, rather than rely on the one you’ve given them.
For FHA loans, the lender can obtain a written VOE from the employer, or all of the following:
None of this means you can’t change jobs during a mortgage application. You need to tell your lender as soon as you know and you must document your new terms of employment.
The self-employed face different VOE rules. In addition to checking your income with tax returns and current financials like balance sheets and income statements, lenders need to know that your business is still, well, in business.
They must do this through a third party source:
VOEs aren’t the only last-minute checks. Your lender will typically pull your credit for a second time in the days running up to closing. This catches out all too many borrowers.
It’s natural to make exciting plans for your new home. Maybe you’re out shopping and spot the perfect sofa for your family room. Or perhaps you happen across a special on paint at your local store. You pull out your plastic and … disaster.
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You think you’ve already jumped through all the necessary credit hoops. After all, you have an approved application.
Of course, you’ll make sure you carry on paying your bills on time. Applying for new credit, opening new accounts or increasing the balances on your existing lines of credit can delay your closing or derail your loan altogether.
Higher balances could increase your debt-to-income ratios and push you over that fine line between approvable and unacceptable.
The last-minute verbal verification of employment and credit check are now routine. However, they’re not the only dangers home buyers face ahead of closing.
If your lender’s underwriter finds anything that appears inconsistent or unusual, he or she can ask for more information or evidence. For instance, that bank statement you provided shows a few bounced checks. Or an unusually large deposit.
Of course, once approved, most applications sail through with no or few queries. Nothing’s final until everything’s finalized, which is when you become the legal owner of your new home.
Here’s what to do when your lender asks you to clarify a point or provide additional documents:
In other words, don’t take lenders’ requests personally. See it as your job to help them tick the boxes that their job requires. Ultimately, you both want your mortgage to go ahead.
Nobody’s pretending that lenders carry out checks and verifications for anybody’s benefit but their own. They are protecting their own interests.
But you are a collateral beneficiary. Because your lender’s objective is to make sure you can comfortably afford your monthly payments. And that’s something you want just as much as it does.

© Copyright Full Beaker, Inc. 2022


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