Verifications

Verifications are about the only form of documentation that borrowers are not expected to furnish. Instead, they are provided by a third-party, like a bank, a landlord, employer or mortagee that affirms facts pertinent to the borrower(s). There are four principal verifications that one encounters in the mortgage process: VODs, VOEs, VOMs and VORs.

VERIFICATIONS OF DEPOSIT (VODs)
A VOD is a document signed by the borrower's financial institution confirming the balance of a mortgage applicant's financial accounts. Its underlying purpose is to determine whether the borrower has sufficient funds to close a loan transaction. Altering this document has enabled borrowers to perpetrate fraud. To combat this, lenders are now, in addition, doing a verbal verification prior to docs. Because most major banks now centrally process their VODs, anything out of the ordinary will certainly cause a raised eyebrow, like a VOD that is hand carried by a borrower.

A common mistake that borrowers make is the assumption that it is okay to move funds around as long as the VOD funds equal the amount on the application. But to their dismay, they find that lenders are also apt to ask for the source of the funds, especially in instances when account increases exceed their monthly income.

VERIFICATIONS OF EMPLOYMENT (VOEs)
A VOE is a process used by banks and mortgage lenders in the United States to review the employment history of a borrower, to determine the borrower's job stability and to cross-reference income with what is stated on the Uniform Residential Loan Application (Form 1003). Lenders require complete VOEs declaring all positions held for the last two years of employment history.

Once a mortgage has been approved and the borrowers have signed their mortgage documents, a Verbal Verification of Employment is conducted with all current employers prior to funding the loan. This is done to ensure that the borrower has not stopped working since the application was submitted, which would influence the terms on which the loan was approved. In cases where a borrower has listed on the application multiple employers during the last two years, a Written Verification of Employment (Form 1005) is sent to all current and previous employers. This form is filled out by an authorized representative of the employer and includes dates of employment, positions held and a breakdown of compensation received. This information is compared to both the loan application and the income documentation, such as W2's and paycheck stubs, to ensure the information is correct.

VOE guidelines are different for self-employed borrowers, as a VOE should not be completed by the loan applicant. Self-employed borrowers are typically asked to either provide a current business license or, for borrowers who do not have a traditional business model, a letter from their Certified Public Accountant indicating that they have firsthand knowledge of their previous and continued employment as their tax preparer.

VERIFICATIONS OF MORTGAGE (VOMs)
Lenders require minimum of 12 months mortgage history on most loans over 12 months old or the maximum thereof, if less than 12 months. Cancelled checks can prove both payment history and interest in the property. A late mortgage payment as with any other credit late is apt to affect one's FICO, the more recent the "late", the greater the impact.

VERIFICATIONS OF RENT (VORs)
For borrowers with no mortgage history, a Verification of Rent (VOR) is an acceptable substitute.

A VOR form is mailed to the landlord to fill out. Among the items on a typical form are the length of tenancy, the monthly rental payment, and if there were any late rent payments. The VOR not only satisfies the lenders 12 months rent/mortgage requirement, but it can also be used as a secondary credit reference for borrowers with limited credit history.

An alternative to a VOR would be 12-24 months of cancelled checks showing that the tenant has paid rent in a timely fashion. If you don't have copies of your checks, you can request copies from your bank for a fairly nominal sum. If a borrower does not have a checking account to make rent payments, it is advisable to use a money order, not cash. With cash there is no way to truly document one's rent payments if need be. But a check or money order provides a "paper trail" that the tenant made rent payments and when.

Copyright 2020 Rod Haase.  All rights reserved.