What Kind of Income Verification Services Do You Need?
When your business is looking to make a loan to a client, it's vital to know that they'll repay.
According to one statistic, the average mortgage payment is just south of $1,200 for a 30-year mortgage. However, the U.S. median amount rises to almost $1,600. For lenders and buyers alike, the prospect of a mortgage can be daunting when you look at the risks involved, and lenders are in the business of risk mitigation. When it comes to supplying loans, the ability a customer has on paying a loan back is of utmost importance.
This is where income verification comes into play. There are a few different ways in which income can be verified today in order to mitigate risk. Let's take a look at which income verifications to use if you're in the business of loan origination.
One of the most common ways in which lenders can verify income is through pay stubs or current tax documents. Pay stubs are helpful for determining current income flow and frequency. They typically outline the following:
• Name and address of employer
• Name and address of the employee
• Gross income
• Gross income year-to-date
Employer pay stubs provide lenders with a clear view of verifiable income, while tax documents help confirm past records of income filing amounts. When more intensive documentation is required, pay stabs may need to accompany a formal, employer-provided attestation of income. For self-employed workers, what can be used in place of an employer's proof of income letter?
Verification for Self-Employment
Lenders tend to prefer seeing a fixed, verifiable salary. For self-employed or freelance workers, proving a stable income can be a challenge. However, providing such documentation is not impossible.
For example, providing bank statements to potential lenders will show a map of past and current incoming sales figures. Freelancers are also able to provide tax returns as a way to verify income. If annual returns aren't available, you can always provide a history of your 1099 forms.
Last but certainly not least, providing a fiscal year's worth of profit and loss statements will be able to provide lenders with a good picture of your overall revenue.
Loan Origination Process
Let's take a look at an example of what a mortgage origination would need in terms of income. A lot of due diligence goes on behind the scenes during loan origination. Title reports get ordered, tax documents poured over, and credit reports get looked at.
This due diligence is crucial to lenders. It helps them confirm the financial profile of a potential customer. The underwriting process for a mortgage looks specifically at the following:
• A buyer's ability to pay for the loan
• A buyer's previous credit history
• Alignment of the purchase price and value of the home
To break it down further, lenders will verify if any of the following exist:
• Late payments
• Outstanding judgments
• Amounts in collections
• Payment history
• Bank deposits
• Ratio of credit utilization
All of the items that get looked at during the loan process help the lender get a good picture of who it is they will be lending to. Other income-adjacent verifications that get completed may relate to high-value assets like:
• Retirement accounts
• Other investments
Basic assets typically listed as part of a loan income verification package would include your checking and saving accounts. But another way that lenders can assess the viability of a potential customer is to look at their debt-to-income ratio.
A proven stable income is of utmost importance to lenders when going through the loan verification process. Looking at a customer's debt-to-income ratio is also important. Holding debt is common in today's world. Lenders will look at how much of the income that a customer brings in is getting funneled to other debts. A high debt-to-income ratio typically indicates they may have overleveraged themselves
and might not look as financially responsible to a lender. This can lead to higher interest rates or outright loan denials.
Income and Credit History
Regardless of the loan type, income verification is a must when it comes to applying for a loan. Seeing how responsible a customer is with said income comes next. That's where credit history can help.
Lenders will pull a credit history report that helps paint a picture of creditworthiness. While there are different types of credit scores, each essentially outlines how a customer spends their money. This picture includes payment histories, balances, and other outstanding loans. This detailed history will help lenders establish what kind of risk a borrower may bring going forward.
Today, online income verification is common. Gone are the days of paper applications. Some benefits to utilizing verification services include:
• Quick and efficient
• Easy data delivery
• Provides accurate income
• Improves customer experience
• Costs are reduced
• Data is integrated
Overall, verification services help loans get closed faster, as well as reduce turnover times and manufacturing costs.
Income Verification: Approved
Income verification is made up of many moving parts, with different documentation options available for all types of income scenarios. From credit history to asset statements, lenders will want to confirm a customer can not only keep up with payments but will be able to cover any curveballs in income reduction.
Having a one-stop shop to validate such income sources can be incredibly helpful.
At Service 1st, we aim to provide exactly that. Our verification services are built to provide a superior client experience. Whether it's employment income or outstanding judgment liens, our wide suite of service offerings verifies it all. Why not contact us to schedule a demo today?