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You’re probably aware but if you’re not, lenders will typically need to verify pretty much everything on a loan application. If it’s printed on the application, it will need to be verified via third party sources. An example of third party sources is income. Applicants will enter how much money they make each month but most every loan program out there won’t just take the applicant’s word for it.

Instead, income verification is accomplished by reviewing the most recent paycheck stubs covering a 30 day period as well as showing year-to-date totals. The last two years of W2s may also be required and if self-employed or if there is income showing on the application that represents more than 25% of total income, recent income tax returns may also be required. This is just part of the verification process.

Lenders verify employment by contacting the employer directly, asking if the individual is indeed working there and for how long. Income will also be verified but again all of this information needs to be verified.

To make sure there are enough funds available for the closing, bank and/or investment statements will likely be asked for. Available funds should be enough to cover the down payment along with closing costs. Most loan programs also ask for some ‘reserve’ funds. Reserve funds are those left over after all the closing dust has settled. Lenders want to make sure there are some funds left over after the closing and in general lenders ask for reserve funds based upon how many months’ worth of house payments are still in a liquid account. Some programs ask for three months of reserves while there are only two. Reserve amounts can vary from one lender to the next but in general this is the norm.

But what about the so-called ‘mattress money?’ It is indeed a term used in real estate and real estate finance. Mattress money is funds the buyers own but that are not documented via third party. Some can save up a little here and a little there over time and when it comes time to buy a home, those funds can be tapped into. Yet the aspect of verification comes into play. Funds can’t just ‘show up’ at the settlement table, they need to be sourced. Are the newly presented funds actually borrowed from someone or somewhere? And if so, what are the terms for paying that loan back?

If there are mattress money funds you’re planning to use, let your loan officer know well in advance to make sure you close on time with funds that are verified to be yours.


Written by David Reed for Copyright © 2022 Realty Times All Rights Reserved. Reed is from Austin, Texas and is the author of The Real Estate Investor’s Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. A Senior Loan Officer and Mortgage Executive for more than 20 years, he has also appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show.