Appendix E — Documentation Checklists by Borrower Type

Working lists, organized by who the borrower is and where the money comes from. For every item: what it is, why the underwriter wants it, and what commonly goes wrong. The third column is the one that saves files.

⚠️ Before you hand any of this to a borrower. Documentation requirements are set by the agency and the investor, not by statute — Fannie Mae's Selling Guide, Freddie Mac's Seller/Servicer Guide, HUD Handbook 4000.1, the VA Lender's Handbook, USDA HB-1-3555 — and then tightened by your lender's overlays. They differ by program and they change. Every period in this appendix is stated as "commonly", which means: verify against the current guide and your compliance department before you promise anything. What the automated underwriting system returns on a specific file governs that file, and it can ask for less than these lists or more.

E.1 How to use these lists

The two questions that decide whether a document works.

1. Does it prove the thing, or merely mention it? A borrower's letter saying "the \$10,000 was a gift from my parents" mentions the gift. The donor's signed gift letter plus evidence of the transfer proves it. Underwriters do not condition files because they doubt the borrower. They condition files because the file must survive being read by someone who has never met the borrower — an auditor, an investor, a repurchase reviewer three years from now (§28, §34).
2. Is it complete, legible, and current? Most conditions are re-issued not because the document was wrong but because page 3 of 4 was missing, the scan cut off the account number, or the statement was from the wrong month.

The four failure modes, in order of frequency:

  1. INCOMPLETE   " all pages " means all pages, including the blank one
                    that says " this page intentionally left blank "
  2. STALE        the document was fine when collected and is not fine now
  3. INCONSISTENT the address, the name spelling, the employer, or the
                    income does not match another document in the same file
  4. UNSOURCED    the money is there and nobody can say where it came from

Collect once, collect completely, collect early. The Linden Street file cleared nine prior-to-document conditions between day 29 and day 33 — five calendar days, three business days — and then nothing happened for eleven days. That dead window, not the document collection, is what cost the file its closing date (§6, §19). Documents are not the bottleneck. Waiting to ask for them is.

The name-matching rule. Every document should carry the borrower's name the way it will appear on the note. A W-2 with a maiden name, a bank statement with a middle initial that the application omits, and a purchase contract with a nickname are three separate conditions, and each takes a day. Fix name variations at application, not at underwriting.

E.2 Every borrower — the universal set

Collected on every file regardless of income type, program, or transaction.

⚠️ The 4506-C is the quiet one. It is a routine signature at application and one of the most common causes of late-file surprises, because the transcripts come back late and disagree with the returns the borrower handed you. If a borrower hesitates at the 4506-C, find out why on day one, not on day thirty-three.

E.3 W-2 salaried

The simplest file, which is why the errors in it are usually errors of assumption.

⚠️ A salary is not automatically a stable salary. A borrower who changed employers three times in two years within the same field is usually fine; one who changed fields may not be. Ask about the history at application, not after the underwriter does.

E.4 Hourly

Everything in §E.3, plus the arithmetic problem hourly pay creates.

The Linden Street base-income calculation is the standard hourly build:

2,080 is 40 hours × 52 weeks. It is a convention, and it only applies when the hours are guaranteed. If they are not, the income is variable and §E.5 governs.

E.5 Overtime, bonus, and shift differential

This is where W-2 files go wrong, because the borrower thinks of this money as income and the guide thinks of it as probably.

The Linden Street worked example — Borrower 1, registered nurse, three years at a regional hospital:

\$580.00 is the qualifying figure. Note what the arithmetic does and does not do: it does not reward the borrower for the better recent year, and it does not punish them for the weaker one. Averaging over 24 months is a deliberate conservatism, and it is the same conservatism that costs Borrower 2 money in §E.6.

⚠️ What breaks this calculation in practice is not the math — it is the document. If the paystubs do not break out the differential separately, the underwriter cannot build \$580.00 and will either count nothing or send a condition. On a file with 42.66% back-end and no room, losing \$580.00 of income is losing the loan. Ask for a stub with earnings codes at the discovery call (§9, §14).

E.6 Commissioned

The Linden Street worked example — Borrower 2, outside sales, four years, W-2 base plus commission:

Now read the same figures the way the borrower reads them. The trend is rising: +18.18%. The most recent year alone would give \$23,400 ÷ 12 = **\$1,950.00 per month. The conservative 24-month rule therefore costs this borrower \$150.00 per month** of qualifying income — roughly 60 basis points of back-end ratio on this file.

⚠️ Explain this at application, not at approval. A borrower whose income is rising and who is qualified on a two-year average feels cheated, and the feeling arrives at exactly the moment you need their cooperation on conditions. Say it on day one: "Your commission is going up, and the guideline is going to average two years anyway. That's the number we work with." (§9, §14)

Two structural facts about commission that drive everything else in the file:

1. Commission is often paid on a different cycle from salary — monthly, quarterly, or annually. On this file it is quarterly.
2. Quarterly commission is lumpy, which means the borrower's bank statements will show large, irregular deposits. That is normal, it is not a red flag, and it is the direct cause of the sourcing condition in §E.12.

E.7 Self-employed — the common core

Who is self-employed, for documentation purposes: commonly, a borrower with 25% or more ownership in a business. Verify the current threshold and the definition with the guide — it governs whether the borrower's income comes from a W-2 or from a cash flow analysis, and it is not the borrower's choice.

The core set, all entity types:

⚠️ The single most damaging conversation in self-employed lending happens before you are involved. The borrower's accountant tells them what they "make," and the accountant is answering a different question — cash in the household, before the deductions the guide adds back and after the ones it does not. On the Fulton Avenue file, the accountant said "about \$9,500 a month." The Form 1084 analysis produced \$8,916.67. Neither party was wrong; they were computing different things. Say this out loud at the first meeting (§11, §32).

E.7.1 Sole proprietorship

What is commonly added back: depreciation, depletion, amortization, casualty losses, and the business-use-of-home deduction. What is commonly subtracted: meals and entertainment exclusions, and non-recurring income. Verify each against the current guide — the treatment of individual lines changes.

E.7.2 Partnership (and LLCs taxed as partnerships)

⚠️ Distributions matter as much as income. A K-1 can report substantial income that the partner never received. Programs commonly require evidence of liquidity or of actual distributions before the income is counted. Verify.

E.7.3 S-corporation

The Fulton Avenue worked example — S-corporation, six-employee residential HVAC, Fannie Mae Form 1084:

⚠️ Declining income inverts the averaging rule. Rising income is averaged over two years, which costs the borrower (§E.6). Declining income is not averaged — the underwriter uses the lower, more recent figure. The rule is not symmetric, it is conservative in both directions, and a borrower who understands that in advance is a borrower who does not feel ambushed (§32).

E.7.4 C-corporation

E.8 Retired, Social Security, disability, and other non-taxable income

Grossing up non-taxable income. When income is not subject to federal tax — much Social Security, certain disability payments, some VA benefits, some child support — programs commonly permit the income to be grossed up to a taxable equivalent for qualifying purposes.

⚠️ Grossing up is the most under-used tool in retiree lending and the most over-promised. It can move a borrower across a ratio line. It also requires documentation that the income is genuinely untaxed, which the borrower's tax return either shows or does not. Never quote a grossed-up income before you have seen the return.

⚠️ Age is a prohibited basis under ECOA (Appendix D §D.9). You may ask when a benefit expires; you may not ask, imply, or reason about how long the borrower will live. The continuance question is about the income, never about the borrower.

E.9 Rental income

How rental income is generally computed: gross rent is reduced by a vacancy and maintenance factor — commonly 25% — and then the property's full PITI is subtracted. A positive result adds to income; a negative result is a monthly liability and hits the back-end ratio. The factor and the method vary by program and by whether the property is the subject or a retained property — verify.

⚠️ The most expensive rental-income surprise is a borrower converting their current home to a rental. Programs impose specific requirements — often a lease, evidence of a security deposit, and sometimes equity in the departing residence. Ask about the departing residence at application (§14, §16).

E.10 Alimony, child support, and separate maintenance

Received (used as income):

Paid (counted as a debt):

⚠️ ECOA and voluntary disclosure. A creditor may not ask whether income is from alimony, child support, or separate maintenance unless the applicant is first told that such income need not be revealed if the applicant does not want it considered (Reg B; §25). Use your shop's approved language.

E.11 Second jobs, part-time, and seasonal work

E.12 Assets

Assets do two jobs — they fund the transaction and they prove reserves, which are a compensating factor. Both jobs require the same document discipline.

Large deposits and sourcing

The rule as commonly stated: a deposit that is not payroll and that exceeds 50% of the total monthly qualifying income is a "large deposit" requiring documentation of its source when the funds are needed to close. The threshold, the definition, and the treatment differ by program and by lender overlay — verify.

Now read the Linden Street file against that.

⚠️ The deposit sat just under the commonly cited line and was sourced anyway. That is not an anomaly and it is the reason you must never tell a borrower "anything under half your monthly income is fine." Underwriters source deposits that do not look like the borrower's documented pay pattern, lenders write tighter overlays than the agencies, and a deposit that is 46.7% of income in an account being used to close is exactly the kind of thing a careful underwriter asks about. The right answer to "how big can a deposit be before you'll ask?" is "assume we'll ask."

What sourcing actually required here. The deposit was the net of a \$6,900.00 gross quarterly commission after \$2,000.00 of withholding** — \$6,900.00 − \$2,000.00 = **\$4,900.00. Note that \$4,900 appears nowhere else in the file.** It is not on the W-2 (\$23,400 for the year). It is not in the qualifying income (\$1,800.00 per month). The borrower could not source it with a single document, and neither could you. It took the commission statement showing the gross, plus the paystub** showing the withholding, plus a letter of explanation tying the two to the deposit date.

⚠️ THE \$4,900 IS NOT INCOME. IT IS AN ASSET-SOURCING CONDITION. The commission it represents is already inside Borrower 2's 24-month average of \$1,800.00 per month. Counting the deposit as additional income would be a double count — the same dollars claimed twice. This mistake is made, it is caught in audit, and it is the reason the sourcing condition and the income calculation must be kept in separate columns in your head (§14, §19).

The sourcing hierarchy — what actually satisfies an underwriter:

  BEST     a document from the payer, naming the borrower, the amount,
             and the date, that reconciles to the deposit
  GOOD     a paper trail: a document from the source account showing the
             money leaving, matched to the statement showing it arriving
  WEAK     a letter of explanation alone
  USELESS  " it was cash I had saved "

Cash is the wall. Undocumented cash cannot be sourced, cannot be seasoned by depositing it, and cannot be used. A borrower with cash savings needs to know this at the first conversation, because the cure — depositing it and letting it season — takes months, and there is no shortcut (§9, §14).

Gift funds and the gift letter

On the Linden Street file: a \$10,000.00 gift from Borrower 1's parents, cleared as Condition 6 on day 29 — gift letter signed by donors and recipients, plus evidence of transfer. Combined with \$28,000.00** across two savings accounts, verified funds total **\$38,000.00.

⚠️ The earnest money is separate, and it is already gone. The borrowers originally held \$43,000.00 and paid \$5,000.00 at contract on day 4. The \$38,000.00 is what remains. The earnest money appears as a credit on the cash-to-close build because it was already delivered — it is not sitting in the \$38,000.00 waiting to be spent again. Cash to close **\$25,376.34 against \$38,000.00 of verified funds leaves **\$12,623.66 = 4.16 months of PITI in reserves. Treating the earnest money as inside the \$38,000.00 gives \$7,623.66 and is wrong (§4, §14, Appendix A §A.9).

Reserves

⚠️ Reserves are the file's shock absorber, and spending them is a real cost. On Linden Street the crisis was resolved by paying off a \$5,200.00 furniture account from reserves. The DTI returned to 42.66% and the loan closed — but the borrowers walked into the house with 2.45 months of PITI instead of 4.16. That is the trade, and it should be named to the borrower when it is made (§19).

E.13 VA borrowers

Everything in §E.2, plus:

⚠️ Ask the entitlement question at the discovery call, not later. On the Linden Street file the loan officer asked about qualifying service on day 1; neither borrower had any, and the VA counterfactual — 0 down, no monthly MI — was closed out immediately rather than lingering as a "what if" (§13, §17).

E.14 FHA borrowers

Everything in §E.2, plus:

The Harlow Street file shows what an FHA first-time-buyer file with assistance actually looks like: a single borrower, 641 representative score, \$4,150.00 gross monthly income, \$395.00** in monthly debts, a **\$215,000 purchase, FHA 203(b). The 3.5% minimum required investment of \$7,525.00** is funded by the DPA second. Base loan **\$207,475.00 (LTV 96.50%), UFMIP of 1.75% = \$3,630.81** financed, total loan **\$211,105.81 at 6.250% — P&I \$1,299.81**, annual MIP **\$96.76, taxes \$215.00, insurance \$110.00 → PITI + MIP \$1,721.57. Ratios 41.48% front / 51.00% back, which exceed the 31/43 manual benchmark and are approvable only on an Approve/Eligible from the TOTAL Scorecard with compensating factors. CLTV is 101.15% — (base loan + second) ÷ price. See §5, §16, §33.

E.15 USDA borrowers

Everything in §E.2, plus:

⚠️ USDA income limits and eligible-area maps change. Verify both, on the current USDA system, before writing a pre-approval letter that names USDA.

E.16 First-time buyers with down payment assistance

DPA is where the most files break, because two sets of rules apply at once and they were not written to fit together.

The Harlow Street DPA structure: a \$10,000 forgivable county second at 0%, forgiven at 20% per year over five years. No payment, no interest, and a clean title after five years of occupancy — but it is a lien, it must be documented, subordinated, and disclosed, and it lifts CLTV to 101.15%. See §33.

⚠️ DPA borrowers need more contact, not less. The Harlow Street borrower called twice a week and nearly walked away three times. The documentation burden is heavier, the timeline is longer, and the borrower has the least experience with any of it. Set that expectation in the first conversation (§8, §33).

E.17 Property-side documentation

The borrower is not the only thing being underwritten.

Condominium projects — the file inside the file

A condo means the project is underwritten as well as the unit, and this is where timelines silently die.

⚠️ Order condominium documents on day one. They are the longest-lead item in most files, they are controlled by a third party with no stake in your closing date, and no amount of borrower cooperation speeds them up (§21).

E.18 What expires and when

⚠️ Every period in this table is stated as commonly applied by major programs. They differ by program, by investor, and by transaction type, and they change. Verify each against the current guide before you rely on it. Where a program's requirement and an investor overlay differ, the shorter window governs your file.

The re-verification trap

The lesson of the Linden Street file is not that documents expired. It is that the last two conditions were designed to be run at the end — and one of them found something.

Two conditions on that file were prior to funding, not prior to document:

  Condition 10   Verbal VOE, both borrowers, within the required window
                   before the note date                          [ PTF ]
  Condition 11   Pre-closing credit refresh / undisclosed-debt report;
                   DTI may not exceed the approved ratio          [ PTF ]

Condition 11 was written on day 28. On day 41 — thirteen days later, and entirely unknown to the loan officer — the borrowers financed \$5,200.00 of furniture on a nine-month promotional plan. On day 44 the pre-closing credit refresh found it: a \$611.00 monthly payment that drove the back-end ratio from 42.66% to 48.48%.

⚠️ Condition 11 did exactly what it was written to do. It was not a formality and it was not a delay. It was a tripwire, set sixteen days before the event it caught. The file survived because the borrowers paid the account in full from reserves on day 46 and documented it with a zero-balance letter and a paid-in-full statement — restoring the 42.66% ratio and dropping reserves from 4.16 months to 2.45 months. It cost four business days and the original closing date.

What this means for your borrower conversation, said at application and again at approval:

  UNTIL THE LOAN FUNDS, DO NOT:

    open any new credit account, including store cards and " no interest
      for nine months " financing at a furniture or appliance retailer
    finance a car, a boat, or a home improvement
    co-sign for anyone
    change jobs, change from salary to commission, or go from
      employee to contractor
    move money between accounts without telling us
    make a large deposit you cannot document
    close a credit card or pay off a collection without asking first
    let an authorized-user account be added to your file

Say it twice, and put it in writing. The Linden Street borrowers were not reckless; they were buying furniture for the house they were about to own, at a store that offered financing at the register. That is the most ordinary thing in the world, and it nearly cost them the loan (§19, §30).

E.19 The Linden Street document set, as it actually assembled

The complete file, by category, with the day each piece landed. This is what "a clean file" looks like in practice.

  UNIVERSAL                                                    DAY
    Photo identification, both borrowers                        5
    Signed URLA + complete initial disclosure package          29   [ Cond. 1 ]
    Borrower's authorization, both borrowers                     1
    IRS Form 4506-C, both borrowers                            29   [ Cond. 4 ]
    Verification of rent, 36 months at $1,850.00/mo             7

  INCOME  --  BORROWER 1, registered nurse, W-2, 3 years
    Paystubs, most recent 30 days, current as of note date     29   [ Cond. 2 ]
    W-2s, two years
    Written VOE                                                 7   ( requested )
    Earnings breakout supporting base vs. differential + OT
      base ......... $33.00/hr x 2,080 / 12 ....... $5,720.00
      variable ..... 24-month average ............... $580.00
                     ( $6,720 + $7,200 = $13,920 / 24 )

  INCOME  --  BORROWER 2, outside sales, W-2 base + commission, 4 years
    Paystubs, most recent 30 days                              29   [ Cond. 2 ]
    W-2s, two years
    Written VOE, commission continuity + most recent
      commission statement                                     30   [ Cond. 3 ]
      base ......... $28,800 / 12 ................. $2,400.00
      commission ... ( $19,800 + $23,400 ) / 24 ... $1,800.00
                     trend rising +18.18%; last year alone
                     would give $1,950.00 -- the 24-month
                     rule costs this borrower $150.00/month

    TOTAL QUALIFYING INCOME ....................... $10,500.00
    variable share ... $2,380.00 / $10,500.00 ......... 22.67%

  ASSETS
    Savings, two accounts, three months of statements  ..  $28,000.00
    Gift letter + evidence of transfer, B1's parents   ..  $10,000.00
                                                         [ Cond. 6, day 29 ]
    VERIFIED FUNDS ..................................... $38,000.00

    Earnest money $5,000.00 paid at contract on day 4 -- SEPARATE,
      already delivered, and NOT part of the $38,000.00

    Letter of explanation + source documentation,
      the $4,900.00 deposit                                   33   [ Cond. 5 ]
      $6,900.00 gross quarterly commission
        - $2,000.00 withholding = $4,900.00 net
      NOT INCOME -- already inside the 24-month average

  CREDIT
    Tri-merge report, both borrowers                            1
      B1  742 / 738 / 751  ->  middle 742
      B2  706 / 712 / 698  ->  middle 706
      REPRESENTATIVE SCORE ....... 706  ( lower of the two middles )
    No lates in 24 months, no public records, no collections
    Pre-closing credit refresh                                 44   [ Cond. 11 ]
    Zero-balance letter + paid-in-full statement, furniture
      account                                                  47

  PROPERTY
    Purchase contract, executed                                 4
    Appraisal ordered .. 7    returned at $385,000 ..          16
    Flood determination -- OUTSIDE the special flood hazard area
    Title ordered .. 7    search dated 17    commitment        19
      Schedule B-II: prior owner's mechanic's lien, $14,780.00
      released and RE-RECORDED ( first release named the
      wrong lot )                                              30   [ Cond. 7 ]
    Homeowners insurance, one year paid, lender named
      as mortgagee                                             30   [ Cond. 8 ]
    Mortgage insurance certificate, 0.58% annual factor        33   [ Cond. 9 ]

  PRE-FUNDING
    Verbal VOE, both borrowers                                      [ Cond. 10 ]
    AUS re-run; CLEAR TO CLOSE                                 47
    Closing Disclosure received ( Tuesday )                    48
    CLOSING, funding, recording ( Friday )                     51

Read the day column. Nine prior-to-document conditions cleared between day 29 and day 33 — five calendar days, three business days, because days 31 and 32 were a weekend. Then the file sat for eleven days. The documents were never the problem (§6, §19, §30).

E.20 The one-page list you can actually hand a borrower

Everything above is for you. This is for them — plain, short, and free of jargon. Adapt it to the file; do not hand a self-employed borrower a W-2 list.

  WHAT WE NEED FROM YOU

  IDENTIFICATION
    [ ] A current, unexpired photo ID for each person on the loan

  INCOME  ( each person, each job )
    [ ] Your last 30 days of paystubs -- every stub, all pages
    [ ] Your W-2s for the last two years -- every employer
    [ ] If you earn overtime, bonus, shift differential, or commission:
        a paystub that shows those amounts on their own lines, and
        your last commission or bonus statement
    [ ] If you are self-employed or own 25% or more of a business:
        two years of personal AND business tax returns, complete,
        every page and every schedule, signed
    [ ] If you receive retirement, Social Security, disability, or
        pension income: your award letter and proof you are receiving it
    [ ] If you receive child support or alimony and want it counted:
        the court order and proof of the last several payments

  MONEY
    [ ] Two months of statements for every account you will use --
        ALL pages, including the ones that look blank
    [ ] For any deposit that is not your paycheck: what it was
        and where it came from, with a document that proves it
    [ ] If someone is giving you money toward the purchase:
        tell us BEFORE it moves. There is a form the giver signs,
        and we need to see the money leave their account and
        arrive in yours.
    [ ] Retirement or investment accounts: the most recent statement

  THE HOUSE
    [ ] The signed purchase contract and EVERY amendment or addendum
    [ ] Your insurance agent's name and phone number

  PAPERWORK WE WILL SEND YOU
    [ ] The application -- sign AND date every page we mark
    [ ] The disclosure package -- return it complete
    [ ] IRS Form 4506-C -- this lets us confirm your tax returns

  ONE MORE THING, AND IT MATTERS MOST

    From today until the day you get the keys, please do not:
      open a new credit account of any kind -- including store
        financing for furniture or appliances, even at 0%
      finance a vehicle
      co-sign for anyone
      change jobs or how you are paid
      move large amounts of money between accounts without telling us
      close accounts or pay off collections without asking us first

    If something changes -- anything -- call me the same day.
    Almost everything is fixable when we know about it early.
    Very little is fixable the week of closing.

⚠️ The last block is not boilerplate. On the Linden Street file the borrowers financed \$5,200.00 of furniture on day 41, four days before the scheduled closing, at a store that offered financing at the register. The \$611.00 monthly payment drove the back-end ratio to 48.48%, the file missed its closing date, and the cure cost the borrowers half their reserves. Nothing on this list matters more.

E.21 The habits that prevent conditions

1. Collect the whole set at application, not in response to conditions. Every condition costs a day of calendar and a unit of borrower goodwill.
2. Open every document you receive, immediately, and count the pages. A statement labeled "1 of 5" with four pages attached should never reach an underwriter.
3. Reconcile before you submit. Does the income on the application match the paystubs? Does the address on the ID match the application? Does the deposit total on the bank statement match the sum of the parts? An underwriter who finds the mismatch is an underwriter who now reads everything twice.
4. Ask "is there anything else?" three times — at application, at submission, and at approval. The answer changes.
5. Name the shelf life when you collect the document. "These paystubs are good for about a month — if we're still working in mid-October I'll need new ones" converts a future condition into an expected event.
6. Order the long-lead items first: condominium documents, title, payoffs, verifications from third-party services, and anything involving a government agency or a homeowners association.
7. Put the do-not-do list in writing, and repeat it at approval, which is exactly when borrowers relax.

Cross-references: §8–§9 (the discovery call and pre-approval) · §10 (credit) · §11 (the self-employed conversation) · §13 (program comparison) · §14–§16 (documentation and underwriting) · §17 (VA) · §18 (appraisal) · §19 (conditions and the day-44 crisis) · §21 (title) · §23 (escrow) · §27 (fraud) · §30 (what the file teaches) · §32 (self-employed cash flow) · §33 (DPA and first-time buyers) · §35 (closing) · Appendix A (formulas) · Appendix D (federal law).