All loans (FHA, 203k, VA, USDA, Fannie Mae, Freddie Mac) are regulated or insured by the Federal Government. All lenders are required to comply with the Patriot Act documentation requirements. With that being said, please take a few minutes to read over these items, as it will help you move quickly towards a loan approval.
- VERIFYING FUNDS TO CLOSE– The Patriot Act and Underwriting Guidelines require us to verify all your funds for closing and reserve accounts needed 30 days before closing. We need FULL copies of your monthly statements (not online transaction summaries) with all pages. Most banks will allow access for you to print these online. We are required to document any deposit into those accounts and PROVE WHERE THE FUNDS CAME FROM. Make copies of deposit slips, checks and provide a paper trail of where they came from.
- CASH– Cash may NEVER be used or deposited into ANY ACCOUNT. Do not ever deposit cash as it cannot be sourced. If you sell a car, boat or any personal item, provide the title, bill of sale and a copy of the certified or personal check. If you have cash in a safe or under you mattress, use it to pay all your monthly bills and expenses and accumulate your paychecks into your savings or checking accounts. If you have someone who wants to help, have them pay your bills directly and accumulate your own funds from your paychecks in the bank.
- 401/MUTUAL FUNDS/STOCK ACCOUNTS– Liquidate these funds as soon as you ratify your contract. Typically, it takes several weeks to do this and the process must be documented. DO NOT TRANSFER MONEY AROUND. You can wire money from any liquid account to the title company for closing.
- GIFT FUNDS– There are very specific rules for gift funds in a mortgage transaction. They MUST provide a signed gift letter, proof they have the funds (most recent 30 day bank statement), document the transfer to your account, or wire to the title company 30 days prior to closing. These statements can be sent confidentially to us, but there are NO EXCEPTIONS TO THIS RULE. The gift can only come from a blood relative or spouse, and they must prove they are related to you via birth certificates or marriage certificates. Please contact us immediately so we can assist you with this process and get you a gift letter with instructions.
- INCOME– Do not change jobs or give notice at any time during this process. It will void your approval. Save all pay stubs and document your deposits into your account. Keep up your hours and shifts, as a drop could have a negative impact. We will get a pay stub a few days before closing and verify your employment. Do not change to part-time or take leave during this process.
- TAX RETURNS– Federal laws require all income to be verified by the IRS. If you don’t claim it, we can’t use it. If you are “self-employed”, we base the approval off of your net income AFTER expenses. The more you write off, the less you qualify for. We take a 2 year average of your income and average the most recent year.
- UNREIMBURSED EXPENSE – DO NOT EXPENSE THEM as it will affect how much you qualify for. If you make a $60,000 salary and you write off $25,000 in mileage…your qualifying income is $35,000!
- HOME INSPECTION– If you are doing a home inspection, we recommend using an FHA 203k certified home inspector. If the home ends up needing repairs, it can be switched to a 203k with no added expense. 203k inspectors are licensed and experienced home inspectors, and we would be glad to help you find one. The 203k inspector is the authority for FHA in the field. They make the decision on what needs to be fixed and will give you a basic estimate of what it will cost. Please order this inspection as soon as you get a ratified contract.
- 203K CONTRACTORS– All work financed can ONLY be done by 203k approved contractors. They have had an extensive background check, are licensed, insured and carry Workman’s Compensation insurance. You cannot use Home Depot or Lowes as a contractor because they are not approved and do not provide any of these items. The homeowner cannot do any of the work included in the 203k renovation. The contractor is responsible for all work and all materials at all times. 203k approved contractors have very competitive pricing in addition to guaranteeing all their work. Construction, materials and labor are generally consistent for all types of construction. Your relative, friend or co-worker is not going to save you any money (while providing insurance, Workman’s Comp and maintaining licenses), and you are last on the priority list because “he is giving you a deal”. Please use a 203k approved contractor.
- FINAL ESTIMATES and 203K SPECIFICATION OF REPAIRS– You must decide on the scope of work and select a contractor within 15 days of your ratified contract. We need both of these items to order the appraisal and most contracts require the appraisal to be ordered at that time. To make this process go smoothly, please ask your contractor to provide material allowances for items that require choices (fixtures, flooring, appliances, cabinets, paint, etc.) Please include delivery and sales tax in the allowance. This will give you some time to choose what you like.
- INSURANCE– You can use anyone you like for your insurance. Lenders do have very specific requirements for binding insurance and coverage amounts. Some insurance companies will not be eligible as they cannot meet these requirements. For 203k renovation, these requirements are extensive, but do allow any property to close as-is. Please allow us to refer you to a company that specializes in these types of insurance.
Thank you for taking the time to read these items. By understanding the requirements of the Federal Government, it will help us to process your loan as quickly as possible!