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Say Goodbye to Collecting Pay Stubs as Criteria for Getting a Mortgage

For decades now, Americans who wanted to buy homes anywhere in the country have endured the arduous task of collecting months’ and sometimes even years’ worth of pay stubs to verify their incomes. While this process does help alleviate some risk for lenders by providing true-to-life verification, what if it were simpler for everyone? According to recent information from Fannie Mae, it soon will be.

The New Verification Process

Just last month, Fannie Mae announced that it would stop forcing borrowers to collect pay stubs in order to qualify for mortgages. Instead, the lender announced that it would instead allow banks and other mortgage providers to access information from an Equifax database to verify a borrower’s ability to repay such a loan. Traditionally, borrowers were required to gather piles (often entire boxes) of pay stubs, tax documents, and other information for this same purpose. Fannie Mae says that this transition should make processing mortgage qualifications simpler and faster for everyone.

Who Is Fannie Mae?

Fannie Mae and its competitor, Freddie Mac, are government programs that purchase loans from lenders and make guarantees to make good on those loans, even if the borrowers default on their payments. Banks and lenders spend much of their time attempting to qualify loans for either Fannie or Freddie, and to do it, they enter information into an automated system. In the most traditional cases, a Fair Isaac Corp. credit score is one of the qualifying factors. Some borrowers do not have these scores, and in these cases, lenders must enter information manually – a time-consuming task that may cause some liability issues in the future, particularly if there are mistakes in the entry.

What Is Changing?

Fannie Mae’s announcement pertains mainly to those individuals who do not have traditional credit scores. In short, it will allow lenders to continue to use the automated qualification system, even for those borrowers who do not have a standard Fair Isaac score. Because of this, borrowers without traditional credit scores can expect their mortgages to process much more quickly, and lenders will not expose themselves to the same amount of liability. Borrowers who do have a Fair Isaac score must still have a minimum score of 620 to qualify for securities from Fannie Mae or Freddie Mac, however.

What About Everyone Else?

If you, like most American homebuyers, have a Fair Isaac score, then you may still see some effects when you apply for a mortgage. For instance, even if you have a 720 credit score, you must still provide proof of your income when you apply for a mortgage. The new information from Fannie Mae may make this process simpler in time by allowing your lender to access Equifax information rather than poring through pay stub after pay stub. For now, though, the process is aimed primarily at those who are new to the United States or who want to consider income from non-borrowers in the household, including extended family members.

Although it is only a small step that applies only to a relatively small group of people for now, it is proof that Fannie Mae is on the right track toward catering to more buyers than before. Hopefully, things will continue to progress and more and more people will obtain the credit they need to get the homes they want.

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