Banks Want to Dig Deep Into Your Private Business

One of my clients has a good paying, steady job. He is working on a loan with a large, national bank in Park City. He is buying a home from a relocation company. His loan was approved, subject to us providing the bank with the following information:

• Proof that the relocation company was not a “flipper”, ie, a private individual profiting from a short term sale of the property;
• Proof my client does not have an ownership interest in the relocation company.
• Proof my client is no longer required to pay alimony to his former wife because she is living with her new boyfriend.

These requests seem ridiculous, but we need to provide the bank with this information or they could deny my client’s loan. My client is not alone. An article on marketwatch.com by Amy Hoak states that fearful lenders and underwriters are heightening scrutiny, requesting more paperwork, and asking unexpected questions that border on comical.

Ms. Hoak cites examples of banks requesting a divorce decree from someone who was divorced 17 years, asking a borrower why his income increased 6% (he received a raise), and asking a borrower to verify his Social Security income would continue. Credit inquiries can also raise a red flag. For example, a borrower who was thinking about buying a car on credit, had his credit report pulled, but ended up paying cash.  The bank wanted proof of the sale.

Sometimes the lender’s requests for more and more documentation frustrate borrowers to the point where they pay cash.

The take away?   If you are going to be applying for a loan to purchase or refinance property, be prepared to provide mountains of paperwork.

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