“You want what? A letter from my previous employer? And my transcript? You said last week that you had everything you needed! What’s going on?” Sound familiar? Just when you thought you were ready to close on your new loan, your lender asks, yet again, for something else. Why do lenders do that, anyway? Don’t they have better things to do?

Yes, they do. Lenders aren’t in the business of declining loans. They’re in the business of approving them. No loans, no money, right? But if you find yourself still faxing this or explaining that then you’re either with an inexperienced loan officer or perhaps more often, the things you send to the lender require further explanation. I’ll give you some examples.

Let’s say that on your loan application you state that you make $5,000 per month so your lender asks for last year’s W2 and most recent paycheck stubs. You’re finished, right? Maybe. When you send in your paycheck stubs, it shows that half of that income is from overtime on your job. That’s going to bring up another issue. Is it likely your overtime will continue over the next couple of years or was the additional overtime income a one-time windfall from an overdue project?

In this instance, your lender will want a letter from your employer stating how much overtime you received last year and if overtime is expected each and very month.

I recall a loan application a few months ago that went something like this: The borrower mailed in his loan application and listed his job as a “Marketing Manager” for a manufacturer making $100,000 per year. We asked for his most recent paycheck stub to verify income from his employer but instead we received a copy of a commission check written to him and signed by him. No big deal there, that's how many small businesses pay themselves. But this meant he worked for himself and not for someone else. He was an independent contractor that bought items wholesale and sold them retail.

He wasn't employed by the manufacturer, but was now considered self employed. We then asked for tax returns for the previous two years to document income and discovered that yes, he made $100.000 last year, but his expenses totaled $75,000, giving him a net income of $2,000 per month. This wasn’t enough to qualify him for the new home. He then said he could get his brother to co-borrow with him and that would be enough to get him in the house. Fine, we said.

In the meantime, the appraisal came and there appeared to be another house on the property. Many times called a “two on one”, because there are two entire houses on one lot. The problem? There were no other houses in the area that had another house on their lot so it was difficult to appraise. We needed more comps but couldn’t find them.

And the brother who was co-borrowing? Yes, he had additional income, but his credit was terrible. So terrible that if we included him on the loan, the credit risk required a different rate or a complete loan decline.

Can you see the pattern here? Many times the answer to one question brings up another. Lenders have better things to do than bother you with seemingly minor issues, like approving your loan for instance, but often answering a question also opens a can of worms. Know that if this is happening to you, perhaps the documentation you’re providing yields more questions than answers.

Published: November 15, 2002

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.