In real estate, what is VOE?
For many buyers, obtaining a mortgage is a crucial part of the real estate transaction. This lays at the heart of the process is the Verification of Employment (VOE), which is critical in ensuring that an applicant has a stable income to meet their mortgage obligations. Here, we provide an overview of VOE – its importance for mortgage applications and how far it extends in the real estate industry. We want to dig deep into VOE to ensure you have all that they mean and how buying a home comes into the fold.
What is VOE in Real Estate?
Definition and Purpose of VOE
VOE is an abbreviation for Verification of Employment. This refers to the lender’s process for validating the employment status and earnings of each potential borrower. When used with real estate, it stands for verified of employment and is a safety net of sorts for lenders that minimizes the risk of borrowers defaulting on loan repayment. In fact, it isn’t just a best practice, but a legal necessity based on the Dodd Frank act, which was designed to increase transparency in part to prevent the risky lending practices that caused the 2008 financial crisis.
What is VOE in mortgage applications?
VOE Process in Mortgage Applications
VOE is a process that is very thorough and is completed at multiple points in the mortgage application process. It begins with:
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3-5 Initial Employment Verification
Lenders check a borrower’s employment and income during the pre-approval process. This first check is usually simple but important step for moving ahead for the loan application.
Pre-Closing Verification
Before the loan closes, a process called ”re-verification” is used to confirm that the borrower’s employment status hasn’t changed since they were initially checked. The step is critical because any alteration could affect the borrower’s capacity to repay the loan.
This may be done through direct calls, emails and even automated systems to facilitate the process and further ensure accuracy. They are also typically third-party verification services that are used to avoid any potential conflicts of interest and to validate the integrity of the data.
What Good Employees Are Saying About VOEs in the Real Estate Industry
What Is a VOE and Why Is It Important in Real Estate Transactions
Risk Management for Lenders
VOE is an essential risk management tool used in lending at any scale. Verifying an income ensures that a borrower can be less likely to default on a loan, providing serious protection on an investment for a lender.
Benefits for Borrowers
VOE also helps borrowers complete a smoother mortgage application process. It reassures lenders quickly — facilitating loan approval and, eventually, home purchase process.
Difficulties and resolutions in VOE
Overcoming Challenges in VOE
Common Challenges
The verification of self-employed individuals or employees of small businesses where documentation may not be as formal or standardized is one of the major challenges in the VOE process.
Innovative Solutions
However, there have been significant improvements in employment verification processes, with the emergence of automated verification systems and the involvement of third-party vendors to streamline and enhance the process. Such solutions allow to make the process easier, faster, and more secure as well.
Conclusion
Summary: VOE is a necessary element of and mandatory for, in some cases, the mortgage application process in real estate. For lenders and borrowers involved in real estate transactions, VOE can add complexity to the process, but understanding how it works and why it matters can help overcome those challenges. VOE not only promotes transparency by fostering open communication, it also contributes to the stability of the real estate market by ensuring that all parties involved in the sale are well-informed and ready to move forward. All of that means that anyone who is even remotely involved in the home buying process needs to have a solid understanding of VOE — and it’s not just nice to have.
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