Subprime loans still exist. In fact, they are making quite a comeback after their disappearance following the housing crisis. The difference this time around is all lenders must follow the Ability to Repay Rules. This didn’t exist before the housing crisis.
No matter what type of loan you get now, the lender must put in a good faith effort to ensure you can afford the loan. This means, somehow, the lender must verify your income. It doesn’t have to be the standard type of verification, though. You don’t necessarily have to supply your paystubs, W-2s, and tax returns. It depends on the lender’s requirements.
No matter the type of loan you get, though, you’ll have to provide paperwork. Here we’ll help you learn how to organize it so that you get your approval faster.
Pull Your Credit First
It’s paramount that you pull your credit before you apply for the loan. You need to know what the lender will see. What if there are things you can fix before you apply for the loan? This is where your paper trail begins. After you pull your credit report, do the following:
- Request any errors be fixed by supplying the proof that there are errors. You should ask both the credit bureau and the creditor to fix the errors.
- Pay any high credit card balances down. Any balances that exceed 30% of your available balance should be paid down.
Once you take these steps, you’ll put yourself in a better position for approval. Even though you are applying for a subprime loan, you still need decent credit. Starting there can help speed along the approval process.
Now comes the fun part – paperwork. What you need depends on the type of loan. Again, everyone has to verify his or her income in some manner. You’ll have to supply at least one, if not more of the following documents:
- Paystubs for the last month
- W-2s for the last 2 years
- Tax returns for the last 2 years
- Bank statements for the last 2 – 12 months
- 401K or other investment statements for the last 2 – 12 months
Just what you must provide depends on the type of loan.
For example, a full doc loan will require your paystubs and W-2s. If you are self-employed or more than 25% of your income comes from bonuses or commission, you’ll need to provide your tax returns as well. Usually, lenders want the last 2 years if you have this type of income.
If you opt for an alternative loan, you’ll likely need your bank statements or other investment statements for qualification. For example, if you are self-employed and claim too many write-offs on your taxes, you may want an alt-doc loan. Lenders may allow you to use your bank statements showing regular deposits rather than your tax returns.
Sometimes borrowers aren’t employed but can get a loan. If you rely on your assets, you may be able to use your investment statements for approval.
Gathering as much of the paperwork as possible can help you secure an approval. It’s best if you keep a hold of your records for at least 1 year. For example, keep 1 years’ worth of paystubs, 1 year of bank statements, and 1 year of investment statements. You should keep 2 years of your tax returns and W-2s, though.
If you stay organized, you can supply your lender with the information they need quickly. This can speed up the approval process and help you close on your loan faster.