Income Verification During the Mortgage Application Process

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Introduction

Every day, thousands of people apply for mortgages in the United Kingdom. In 2020, the gross mortgage lending was valued at 245.91 billion British pounds. With so many mortgage applications, the income verification of the applicants is even more essential.

Here is a detailed guide on how lenders verify the borrower’s income and other assets during the mortgage origination process and how Digilytics can help improve this process for you.

The Need for Income Verification

Mortgage origination is not a single-step procedure in which the borrower sends their application, and the lender approves it. Instead, a series of steps are executed in the correct method to form the loan origination process.

One such step is income verification. This step helps borrowers and lenders in a few ways.

  • Only when the borrower submits complete information of their assets and income, they stand a chance at receiving a loan.
  • On the other hand, lenders use asset and income information to evaluate if the borrower will pay the monthly mortgage amount regularly.

If the lender concludes that the borrower will not pay the monthly mortgage dues, they can offer other mortgage deals. This way, it’s a win-win situation for both parties.

Generally, the borrower submits the following documents for income verification.

  • W-2 forms
  • Bank statements
  • Tax returns for the last two years
  • Payslips for the last two or three months

Some lenders may even ask for contracts to verify the borrower's employment status. However, as self-employed professionals don’t have contracts and payslips, lenders may use the available banking feature to analyze the transaction history of the applicant.

There is no requirement for a high income to receive a loan. Most lenders don’t look at the income value alone while assessing the mortgage application. Instead, they evaluate the borrower’s DTI (Debt to Income) ratio.

This ratio provides an insight into the amount of money that goes towards previous debts from the monthly income. Lenders also use DTI to calculate the amount of money needed from the borrower’s income for paying the monthly mortgage. The borrower’s overall DTI must be around 30-40% for a better chance at loan acceptance.

Disclosing Asset Information

Apart from income and employment details, assets also provide vital information that lenders use to evaluate the borrower’s creditworthiness. An asset is any item that the borrower owns that can be converted to cash when needed. An asset statement provides a detailed summary of all the support.

Types of Assets

There are many different types of assets. But all of them come under two main categories.

1. Liquid Assets

Liquid assets are those assets that can be changed to cash in a short period. These assets include bank accounts, stocks, mutual funds, etc. It is always better to have enough liquid assets with you as it comes in handy during difficult situations.

Even if the borrower faces an emergency or loses their job, lenders can stay confident that the borrower will pay all the dues promptly from their liquid assets.

2. Non-liquid Assets

These are assets that are more difficult to convert into cash quickly. Eventually, these assets can be changed to cash, but the time taken in doing so is higher than the liquid assets as the entire process is more complex.

Non-liquid assets include cars, property (house and land), jewellery, etc.

3. Gift Funds

Some people also possess gift funds, including any money gifted to the borrower from a loved one. The borrower can then use this money as a deposit or down payment. While applying for mortgages, borrowers must show a legitimate source for this money to avoid any problems with the mortgage application.

The Digilytics Input

The borrower arranges all their documents and submits them along with their mortgage application. You then verify all these documents, check if they are genuine, and evaluate the borrower’s creditworthiness.

So, what can Digilytics do in this entire process? How can we help you in the income verification process?

Well, it’s pretty simple! Digilytics automates this step and the entire mortgage origination journey for you. By leveraging modern-day technologies like artificial intelligence and machine learning, we ensure that all the documents are verified accurately at an accelerated pace.

The Why

Accuracy is of utmost importance in the mortgage origination process. While processing hundreds of mortgage applications, there are bound to be errors. These errors can essentially make or break the deal for the borrower.

The error rate is significantly reduced by automating the entire process, as machines can continuously perform the same task without getting tired.

Automation and digitization also speed up the entire process. For example, the manual loan origination process takes over 35 days on average to complete. Performing the same activities on a computer with the help of AI and ML can drastically reduce the time to fund.

The How

As seen earlier, income verification requires a lot of documents. Digilytics can efficiently extract and verify all the information in these documents using AI, ML, and NLP.

RevEl, a Digilytics product, enhances the input data received from OCR (Optical Character Recognition) tools. Once all the data is accurately extracted, RevEl classifies all the documents into different categories based on their type.

For example;

  • Payslips, credits, pension - Income
  • Rent, mortgage, food, travel - Expenditure

RevEl also checks if the information provided by the borrower is complete by comparing it with pre-set requirements. It then validates this information in two ways.

  • Cross-validates basic information like name, address, and number with other documents
  • Verifies the information with guidelines set by you and other government regulations

This way, Digilytics RevEl improves the borrower’s income and expenditure analysis.

It then converts the data and results into actionable insights. Finally, you can use these insights to either approve or reject the loan application.

RevEl’s dashboard allows manual decisions as well so that you always have complete control over the entire mortgage origination process.

Digilytics is also in partnership with many third-party platforms like AccountScore that help in verifying income with data directly obtained from the bank.

The Work Number is another platform that can help verify employment and income directly from the borrower’s employer.

Conclusion

Digilytics is committed to revolutionizing the entire loan origination process by digitizing it. With AI and ML, we improve the efficiency of income verification and make the process more streamlined for lenders and buyers. Feel free to contact us to request a demo.