Why is there so much paperwork mandated by lenders for a mortgage loan application when buying a home today? It seems that they need to know everything about you and require three separate sources to validate each and every entry on the application form.
Buyers are being told by friends and family that the process was a hundred times easier when they bought their home twenty years ago There are two very good reasons that the loan process is much more onerous on today’s buyers than perhaps at any time in history.
The government has set new guidelines that now demand that the bank proves beyond any doubt that you are indeed capable of paying the mortgage.
During the run-up to the housing crisis, 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 can’t happen again.
For many years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating other million+ 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 the application. But the market has caught up. Foreclosures accounted for just 0.7% of all closed sales, and short sales accounted for 0.2%. That means that 99.1% of all sales were good ol’ fashioned sellers with equity.
The friends and family who bought homes ten or twenty years ago experienced a simpler mortgage application process, but also paid a higher interest rate (the average 30-year fixed rate mortgage was 8.12% in the 1990s and 6.29% in the 2000s).
If you went to the bank and offered to pay 7% instead of around 4%, they would probably bend over backward to make the process much easier.
Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.