August 1st, 2014 5:06 PM by Robin Bain
I'm often asked why lenders ask for so much paperwork for a mortgage loan application when buying a home or refinancing today. It seems they need to know everything about us and require three separate sources to validate each and every entry on the application form.
Many homebuyers are being told by friends and family that the process was much easier when they bought their home 10 to 20 years ago.
There are two very good reasons why the loan process is much more onerous for today’s buyer than perhaps any time in history.
The government has set new guidelines that now demand that the lender prove beyond any doubt that you are indeed capable of affording the mortgage.
During the run-up in the housing market, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their homes. The government wants to make sure this won’t happen again
Lenders don’t want to be in the real estate business. Over the last seven years, banks were forced to take on the responsibility of selling millions of foreclosed homes. They also negotiated another million plus in short sales.
Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on your application.
However, there is some good news. The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate below 5 percent, in most cases.
The friends and family who bought homes 10 or 20 years ago experienced a simpler mortgage application process but paid a higher interest rate (the average 30-year fixed rate mortgage was 8.12 percent in the 1990s and 6.29 percent in the 2000s).
Bottom line: Instead of concentrating on the additional paperwork required, let’s be thankful we're able to get a mortgage at historically low rates.