Dna Sample: is it a Requirement of the Mortgage Documentation Process?

I often joke with customers when giving them the list of documentation that I need to process their loan that they will also have to bring me a DNA sample. Usually, these customers are first time homebuyers or their loan is a government product. But, it begs the question as to what documentation will a lender request from you when processing your loan? Why do some people need to bring a wheelbarrow of documents to the lender and some people can show up empty handed?

It all depends on your credit history, the loan to value of the property you are buying or refinancing, the loan product you are using and the type of loan you need. Change any aspect any of the aforementioned, and your documentation requirements can change. Also, recent underwriting guideline changes resulting from widespread foreclosures have resulted in a tightening of the documentation regulations.

If a borrower is buying a home, has a credit score above 720 and is putting at minimum a 20% down payment on the property, it is very likely the documentation required from the borrower to process the loan is nada. Zilch. Zero. The lender will still need a fully executed and legal sales contract, a good appraisal, and will independently verify employment, but that’s it. See ya at the closing table. And, if your loan to value is low enough (i.e., you’re putting a ton of cash down), the lender might not even care about getting an appraisal of the property. Now how easy is that?

However, at the other end of the spectrum is the DNA sample. Say you have an “iffy” credit score, below a 620. Maybe you had medical collections in the past. You perhaps you’re a first time homebuyer who qualifies for a government program. Or, you could be self employed. You own multiple properties, too. Ok, then you might as well be prepared to leave a hair sample. All kidding aside, be able to document a lot of information. Possible bridges to cross depending on which of the previous scenarios applied may include that your lender wants a 3 year rental history, and will have your landlord(s) verify at least the last twelve months. Your lender will want a 2 year work history, but you might also need to write letters of explanation to address any gaps in employment. They will have to make sense to boot. They lender may contact HR and have them verify everything you’ve told them and, in addition, you’ll have to give your lender your last couple of pay stubs. You may have to drive down to your cable, cell phone and utility provider and get them to verify you’ve paid your bills on time for the last twelve months. You might have to dredge up your income tax returns and W-2’s for the past two years. You may need 2-3 months worth of bank statement printouts, recent 401(K) or stock statements or anything of the like. The lender may ask to see your divorce decree and/or marital resolution. You may be asked to show you have received child support, deposited into your account for twelve months and that it will continue for the next three years. You might have to dig through your filing cabinet and get out lease agreements for rental properties you own. And don’t forget if you’re self employed, it only gets worse. K1’s, partnership returns, and W-9’s are common fare.

The good news is that most required documentation falls somewhere in between requiring a handshake and requiring a DNA sample. If you are pulling cash out of the property during a refinance, you will have to show some type of documentation. If you are only putting 3% down payment on the loan, your income will be examined more closely than putting 30% down. The risk factor is higher for the lender. The layering of risk was once explained to me as layers of an onion. For some reason, this analogy made sense to me. The more layers you have to peel back, the more risk is involved. Lower credit score, self employment, adjustable rate mortgages, ownership of multiple properties and cash out refinancing are examples of different traditionally identified risk factors. Alone or combined together, you can expect increased documentation requirements.

So, be patient with your lender when they pluck that hair sample from your head. They’re not being nosy, they’re just being thorough.