Many lenders will have documentation requirements that ask for information regarding income, assets and employment history. The complexity of the information will vary by the lender; and the verification processes from the information provided will also vary depending how strict their lending standards are.

“Verification” will generally cover three types of generalizations to document income. Going with a “stated” program means that there is no direct verification of the borrower’s claim. In recent times, (2009) this method is virtually extinct. A “fully verified” loan means that the lender will obtain written confirmation from relevant third parties, most usually the borrower’s employer or bank. In-between these extremes, lenders may accept evidence provided by the borrower, such as W2s and tax returns, or verbally by an employer or by the CPA of a self-employed borrower.

In addition to “stated” and “full verification” documentation the following programs are available: “stated income”, “no ratio”, “stated income / stated assets”, “no income / no assets” (NINA), “no income, verified assets” (NINA), and “no documentation” programs.

How will lenders use documentation requirements and apply them to my mortgage?

Lenders will view loans with weaker documentation as riskier. They often vary their documentation requirements with other features of a loan that affect risk, such as the loan type, down payment, loan purpose or credit score. Simply put, there are leniencies made with between the borrower and the bank’s loan officer should challenges in obtaining the mortgage occur.

Lenders will adjust mortgage pricing (interest rates, and fees) for different documentation types. Approval may still be a reality, but paying a heftier fee may be the result.

Before applying what else should I take into consideration?

Understanding Credit Reports

Mortgage Loan Application Requirements

Mortgage Prequalification Questions

How should a potential borrower view documentation requirements in regard to bank policies?

In general, many borrowers do better when providing full documentation, if they have the ability. So many borrowers do not have the ability so that the other forms of documentation were created.

Self-employed borrowers often go “stated income” because their tax returns don’t reflect the actual cash flow they have available to pay their mortgage. Stated income may also be used by borrowers who can’t meet the two-year rule, perhaps because they have recently changed jobs.

Couples with two incomes where only the income of one is used to qualify may also go no-ratio if stated income is not available. This would be the case if the qualifying borrower is not employed in a job or business that is consistent with a stated income that includes both incomes.

No income/no assets programs such as NINA; neither income nor assets are disclosed, but employment is verified. NINA is attractive to borrowers averse to disclosing anything about their finances, and it has the great virtue of simplicity. However, lenders will expect the borrower to have a job or a business.

No Docs: Under this rule, neither income, assets or employment are disclosed. This makes it the simplest of all to the borrower, and the riskiest of all to the lender. Ordinarily, it will only be offered to borrowers who have good credit.