Finally, your dream client’s file has arrived in your in-box. But don’t let their swoon-worthy salary and stacked asset list distract you from doing your due diligence.
Even the most statistically ideal lending clients require thorough review, especially on matters such as income. Given that it’s the source of their ability to repay their loan, confirming reliable sources of income is essential. Protect your business and your clientele’s best interests by treating everyone, even prime lending candidates, with careful consideration.
1. Verification Makes Sense of Variable Income
These days, it’s common for prime candidates to have multiple sources of income. Whether they’re in a salaried role with bonuses or have outside investment income, a handful of paystubs likely don’t show the whole picture. Add in the complexity of commissions or even general salary adjustments due to cost of living, and things get tricky.
Use your income verification process to flatten out highs and lows often seen in a few months of paystubs. By working directly with your borrower’s employer, you can get verifiable data that you can rely on. Plus, if there are spikes in income, you can ask the employer about the source and methodology.
During your information exchange with employers, you can also learn more about the source of income. Where there are performance-based bonuses, get the details on the terms. Some bonuses or incentives are guaranteed, while others are contingent on performance. The methodology will make a difference to what you can consider reliable income or not.
2. Get Clarity on Borrower-Reported Data
Not everyone knows their salary down to the penny. And varying timelines for performance reviews can impact how a person’s salary shows up on official documentation. Eliminate the confusion of fiscal years and their impact on annual merit increases by verifying borrower-reported data. Using a systematic process can ferret out incorrectly supplied information, especially in dual-borrower applications.
For borrowers with more than one source of income, this process can also expose those details. If a borrower works full-time but also does consulting on the side, you’ll want more information. Get signed contracts, review year-over-year earnings, and more to determine whether this income can be included in your process. If you can outline what information you need from your borrowers, aim to provide that before they submit their file. The more notice they have, the more thorough they can make their accounting, and the easier your job will be.
Many people have become experts in the gig economy, focusing on freelance work that’s hard to pin down. Whether your borrowers specialize in social media influencing or have W-9s with multiple firms, you’ll need verifiable information. Maintain consistency and fair lending standards, getting clarity where it’s needed.
3. Borrowers Get a Second Chance to Check Their Budgets
The idea of moving into a new home can cloud the judgment of even the most fiscally conservative borrowers. Something about the dopamine rush of new and better living conditions can get people in trouble. And when it comes to mortgages, it’s not so easy to back out of an oversized payment.
Use your income verification process to confirm with your clients that the amount they’re asking for is manageable. While you aren’t a personal financial advisor, it does make sense to discuss approval amounts versus budget with them. As much as you want to close a loan, you don’t want your borrowers to default.
Focus on pursuing and nurturing quality loans where everyone’s goals are met. When your borrowers land on a monthly payment that’s manageable, they’ll be able to make on-time payments. And you’ll build a reputation of closing successful loans month after month.
4. Issues Are Brought Forward Before It’s Too Late
The last thing anyone in the real estate industry wants is a surprise three days before closing. Common red flags associated with untraceable deposits or other new sources of income can instead be resolved during income verification. Along with confirming your borrowers’ reliable employment history, this detail should be at the top of your list.
Use your informational interview or online questionnaire to source review-worthy details. Ask questions about gift money, inheritances, and other sources of income. If your borrowers are relocating to a new area, it’ll be important to confirm transfer of employment or new offers.
As remote work becomes more commonplace, it can be tempting to assume that employment will carry over. But not assessing this risk area can cause big problems for your loan. Some employers aren’t able to offer nationwide remote employment. And there’s no guarantee that a relocation means new jobs for both borrowers. Eliminate doubt by confirming every detail your clients have reported, especially their income.
Don’t Cut Corners, Even When Dealing With a Clean File
With monthly quotas looming, it can be tempting to speed a seemingly clean file through underwriting. But skipping out on income verification can cost time, money, and even your borrowers’ dream home.
Stay true to your eligibility verification process, using tools to help you expedite essentials like income verification instead of skimping. When you do, you’ll trim time and go into closing confident in your quality loan product and reputation.