In the bigger picture, it’s all about fraud, hardship, and qualification. Are you who you say you are? How can you prove that? Do you truly have a hardship that requires a short sale? As a buyer, do you have adequate, stable income? For all of these instances, having the appropriate paperwork readily available can save tons of time and heartache.
Typical Lender Required Documents
State-issued ID, drivers licenses, or passports can also be used. Buyers and Sellers have to provide this to the lender to ensure identity and avoid fraud. Additionally, you will be asked by the closing agent for this when you close escrow on the house because they are notarizing your signatures and have to verify your identity to do so.
Proof Of Income (POI)
POI is needed and this usually consists of two months or more of your pay stubs from employment. If you’re self employed, you will be asked to provide copies of your 1099 tax forms. In a short sale, lenders want to see POI from the sellers to substantiate their financial hardship and the purchase price for buyers is determined in part by their income.
Two Months of Bank Statements
These are required for buyers because lenders want to see stable, long-term income and verify that the money belongs to the borrower. For short sellers, this is part of the documents required by the seller’s lender to establish a hardship.
Two Years of Tax Forms
Two years of tax forms are required by lenders for short sellers to establish a hardship and as another tool to review the seller’s finances. For buyers, again, lenders want to see stable, long-term income.
Two Months of Mortgage Statements
Sellers with mortgages will need to provide at least two months of mortgage statements. This provides the information the escrow or title company will need for getting applicable payoffs to be included in the real estate closing. These payoffs must be included before the title to the property can be insured covering lenders for new loans on the title and clearing the seller from all obligations (i.e. making sure the title is free and clear for the sale).
You’ll want to remember that because of the length of the transaction, all the documents required by buyers and sellers has to be updated, typically every 2 months for the lenders. This is one of the areas that holds up short sales the most – make your buyers or sellers aware of this up front and prepared to provide their documentation regularly so as not to slow the process.
Other Miscellaneous Documents
For instance, if a divorce has taken place since the property was purchased, the lender will want a copy of the divorce decree to ensure that the seller has a right to sell the property exclusively. Buyers may need to provide this for name changes and/or to show that they are not responsible for the credit history or debts of their prior spouse.
A Quit Claim Deed or Disclaimer Deed
This type of deed may be necessary for married buyers and sellers who are living in a community property state such as Arizona. If you are married and buying property, your spouse will need to sign a disclaimer if you want to buy the property in your name only. A seller who is separated for example, but not yet divorced, will need a Quit Claim Deed if their spouse is not to gain proceeds from the sale or be part of the transaction.
Disclaimer: This is not legal advice, talk to the title company or lender involved as they can inform you of any documents that are needed for any situation and legalities.