Why your Documentation Needs to Qualify for a Mortgage

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Your earnings are one of the most critical factors for your mortgage qualification. How much you earn annually is not the only factor; how it’s documented is just as important. The Israeli Mortgage banks use your net income—after all taxes have been paid—to define how much you earn. Additionally, they will not just look at your most recent three months of income; they will look at your total income for the current year as well annual income for the previous two calendar years. You may be asking, “Why does it matter how my income is documented? My banker has known me for years, and I have been banking at the same branch for 15 years; they even know my parents, etc. My bank knows my income even without documentation because they see deposits.” To answer this, allow me to very briefly review the history of the development of international financial regulation and the mortgage market in the US. This will give you the context to understand that no matter how well your banker knows you, they will still need to consider what I mention above. Going back to the 1800s, a majority of borrowers received bank mortgages that often needed to be paid back after five years. It was common for a banker to give a borrower a mortgage because of their long-term relationship. There was a growing trend at that time that wealthy families in New York used agents (aka mortgage brokers) in places like California (remember the Gold Rush), who found good borrowers to loan to. “Good” in this context meant that the probability of the borrower paying later than expected—or not at all—was minimal to none. (We will refer to this as “risk of default.”) These New York families did not even know the borrower personally; they only knew what they were told by their agent or read in the borrower’s file. As the world evolved over the next century, and investing and finance was internationalized, we saw the development of treaty organizations and industry-specific not-for-profit organizations. In short, thes