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When my husband and I put in an offer on a house in September 2019, I figured the hardest part would be saying goodbye to a decade’s worth of savings to afford the down payment.
That part was difficult. But so was the document-hunting beyond the typical paper trail like bank statements and tax returns our lender required.
Granted, our situation was complex: We’d casually attended an open house and fallen in love with the home, but we hadn’t even sought a mortgage preapproval yet. So we were approaching the process a bit out of order and were underprepared for the paper chase that ensued as a result. Add to that a seller who wanted to close quickly, and we were in for a total scramble to the finish line.
We got the loan, but here’s what I wish we’d been better prepared to track down or explain.
1. Documents from a former employer
To fund part of our down payment, I recently sold some shares in a company I used to work for. Any such large, one-time deposits into your checking account around the time of a mortgage application are bound to raise a lender’s eyebrows, and indeed we were asked for proof of the source of this transaction.
I provided the form I signed indicating the number of shares I sold, but that was insufficient as far as the lender was concerned. I then had to contact my former employer to get documentation of a wire transfer the company had initiated — extra legwork for our already short timetable.
“The reason lenders scrutinize these atypical deposits carefully is they want to make sure the buyer didn’t borrow money to help them cover the down payment, which is prohibited,” Brian Davis, a real estate investor and co-founder of SparkRental.com, which provides automated rental services for landlords and property managers, said via email.
Ideally, you’d avoid moving around large sums of money like this during a mortgage application. But circumstances and time frames differ, and you may already be receiving deposits beyond your usual paycheck: a bonus, alimony or child support, income from gig work or rental properties. Just know that your lender will want to find out more about those deposits.
Large transfers out of your account can also lead to lender questions, as Gregory Harrison of Rockville, Maryland, found out. He and his wife paid a travel agent for their honeymoon via Automated Clearing House withdrawals from their bank account, all while undergoing a mortgage underwriting process.
“Our lender originally told us we could pay [this way] and it wouldn’t throw up red flags,” he messaged me. “Well, it did.” Harrison remembers the bank continuously questioned them about the withdrawals.
The couple successfully pushed back, showing receipts from money transfers and noting that they’d already informed their loan coordinator of the transactions ahead of time.
Takeaway: Bank statements alone may not be enough. Save things like receipts and records of investment sales, too. You can also provide a letter explaining the reason behind the deposit or withdrawal.
2. Records from a long-ago landlord
You may think your rental history no longer matters once you plan to own. But lenders may often request proof that you were a responsible renter, such as a record of on-time rent payments going back 12 months.
I switched banks when we moved to our current city, and we rented here for only five months before applying for a mortgage. That meant I had to produce proof of seven more months of rent payments. But I no longer had access to my old checking account and online bill-pay records.
Thankfully, my old landlord was organized, and by chance, I called him right before he went on vacation. He emailed me a spreadsheet detailing my entire rental history as his tenant. It showed my monthly on-time payments, even payments I’d submitted early, and it was enough to satisfy our lender.
Takeaway: Save physical copies of rent checks or bank statements proving rent money was withdrawn, especially if you’re also considering switching banks. Also, hang on to your landlord’s contact information.
3. Forgotten items on credit reports
Shortly before we found our house, my husband upgraded his iPhone, opting to pay it off in installments. He ended up having to explain the resulting credit inquiry to our lender multiple times.
Ultimately, the lender was satisfied that this was for a new phone and not another major loan. And at least the inquiry was recent, so my husband was able to recall and answer questions about it.
You may have skeletons in your credit history closet you didn’t know were there. Even experts can be taken by surprise.
“I had returned a cable box when I moved back to New York from L.A., and it was never logged correctly,” Kevin Leibowitz, owner of Grayton Mortgage in Brooklyn, said via email. My cable company "turned me over to collections, and I never received the notices that they sent me. I was made aware of this when I went to refinance my house in L.A., and my credit score was 650.”
Leibowitz notes he had to delay his refinance because of it.
“The economics didn’t work [or] make sense with the lower credit score,” he said.
Takeaway: Before you get a preapproval, request a free copy of your credit report from annualcreditreport.com to check for potential issues.