Why Does the Mortgage Underwriter Keep Asking for More Documents?

Just when you thought you cleared everything up, here comes another request.

It can feel frustrating every time the mortgage underwriter asks for more documentation.

What’s the deal?

Why can’t they ask for everything at once?

It’s not because they are trying to make your life difficult, although it can feel that way.

Instead, underwriters are peeling back the layers of your financial picture, and sometimes those layers bring up more questions or concerns.

Providing more information, answers, and documents is the only way to alleviate those questions and concerns.

If you want more detail about what mortgage underwriting is and what underwriters analyze, read this article: What is mortgage underwriting?

Is it Normal for Underwriters to Keep Asking for More Information?

First, you should know it is entirely normal for mortgage underwriters to ask for more information.

It would be best if you didn’t worry about not getting approved, although that may be difficult.

In fact, it’s a good sign when an underwriter asks for more information because it means so far, you’ve met the requirements, but they need to check off a few more boxes before they can clear your home loan to close.

How Does the Underwriting Process Work?

When you first apply for a loan, you provide the underwriter with basic paperwork. 

This usually includes:

• Paystubs for the last 30 days
• W-2s from the last two years
• Tax returns from the last two years (if self-employed or working on commission)
• Two months of bank statements
• Identification

This paperwork usually satisfies the requirements needed for underwriters to determine if you qualify for the loan and provide you loan approval with conditions, also known as conditional approval.

If you notice on the conditional approval letter, there are conditions you must clear before closing on a home..

This is when the additional paperwork request begins.

The pre-approval was at the basic level, but once you have an offer on a home and want to close on the loan, the lender must get into the fine details of your financial situation.

So what can cause more paperwork requirements?

Here are a few examples:

Child Support on your Paystubs

When you applied for the mortgage, the lender pulled your credit and reviewed your debts. But, if you pay child support, that doesn’t appear on your credit report.

If you didn’t disclose you pay child support and the underwriter finds it on other documents, such as your paystubs, they will ask for more information.

They must know how much you are obligated to pay each month and how long you must pay it, and you’ll need to provide paperwork showing it.

Underwriters also must ensure you’re on time with your payments and don’t owe back child support.

Installment Payments to the IRS

If you have an installment plan with the IRS, it won’t appear on your credit report, but it might appear on other tax documentats. 

For example, if the underwriter discovers you have a payment plan with the IRS, they’ll need paperwork regarding the plan (the installment agreement), how much you pay each month, and how much longer the plan will last.

Self-Employed

If you’re self-employed, underwriters have to get specific about your income. 

They may ask for business and personal tax returns, balance sheets, and current YTD Profit & Loss statements.

Underwriters may also ask for a letter from your CPA certifying you’re self-employed.

Read: Self Employed Home Loans

Gap in Employment

If an underwriter discovers you have a significant gap in your employment history they may ask for a Letter of Explanation (LOE). 

LOE is a letter written by you stating why you had a gap in your employment, what the circumstances were, and how you recovered from it.

Sometimes it’s as simple as you staying home with your children for a while or taking care of a sick family member, but if that’s not the case, you must provide information regarding the gap and how it’s not something to be concerned about.

Large Bank Deposits

If lenders discover you have large bank deposits in reviewing your bank statements, they may ask for proof of where they originated. 

Unless the deposit ties into your income, you must provide a paper trail of the funds to source where the money came from. Did you take out a loan or did a family member give you a gift?

Proof of Employment

If you have not been at your job long, underwriters may ask for proof of what led you to the position, such as a college degree or specific training. 

This is common for people with their first job or anyone who just changed jobs.

Items that mortgage underwriters will analyze

Credit score and credit history

The minimum credit score needed for a mortgage approval varies depending on the lender you choose and the type of mortgage you seek. 

The minimum credit score for a conventional mortgage or VA loan is typically about 620; for a jumbo loan, it’s usually 640.

You can get an FHA loan with a credit score as low as 580.

Credit history

Do you pay your bills on time, or do you constantly have lates or collections? 

Your credit history and credit score assess your creditworthiness and financial responsibility. 

For example: If you have a habit of not making your mortgage payment, that is a sign that you’ll do the same with a new mortgage.

This would be problematic and most likely would result in a mortgage denial.

Bankruptcies, delinquent accounts, accounts in collections, charge-offs, and accounts settled for less than the amount owed are all warning signs you may be a risk.

Read: How to Qualify for a Conventional Loan After Bankruptcy

Debt-to-income (DTI) ratio

Lenders will review the percentage of your monthly income that goes to monthly debts to assess your ability to repay the loan.

For example, it may be challenging to secure a loan if your housing payment is 40% or more of your gross monthly income (28% or more if you’re applying for a USDA loan).

Read: Debt-to-Income Ratio – How it’s calculated

Appraisal

An appraisal will be ordered to make sure the value of the home is acceptable.

If the appraised value comes in lower than the loan amount requested, than you’ll need to adjust the loan amount.

Lenders won’t lend money to you if the loan amount requested is more than the appraised value.

Is it Bad When Underwriters Ask for More Documents?

It’s not bad if underwriters ask for more documents.

It might feel like an inconvenience but consider it another step closer to closing on your loan.

The underwriter’s job is to determine beyond a reasonable doubt that your income is secure and stable and that you can repay the loan. 

Lenders are under strict guidelines by the government and investors, so they must do their job exceptionally well to ensure all loans pass the requirements.

Instead, provide as much documentation as possible to develop the full picture.

This way, lenders have what they need and can clear your loan to close faster.

Tips to Close on your Loan the Fastest

If you want to close on your loan fast, here are some simple tips that can help:

• Provide as much of your financial paperwork with the application
• Work closely with your loan officer to learn about any new documentation requests
• Provide the documentation as quickly as possible
• Include evidence with any Letters of Explanation to avoid any back and forth
• Make sure the paperwork is legible and you provide all pages.

Final Thoughts

Underwriters will continually ask for more documentation until they have a clear picture of your financial situation.

They can’t fund your loan if they can’t prove that you can afford the loan beyond a reasonable doubt.

Some situations are clear and easy to underwrite, and others take much more ifnormation, paperwork and time.

The key is to have patience, communicate with your loan officer, and provide the documentation as quickly as possible to get your loan to the closing table.

More Underwriting Info:

• The Real Reason Underwriters Deny Loans – What You Need to Know
• How to Qualify for a Mortgage: The Ultimate Guide to Income Requirements

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