Why Is So Much Paperwork Required to Get a Mortgage?
When buying a home today, why is there so much paperworkmandated by the lenders for a mortgage loan application? It seemslike they need to know everything aboutyou. Furthermore, it requires three separate sources tovalidate each and every entry on the application form. Many buyersare being told by friends and family that the process was a hundredtimes easier when they bought their home ten to twenty yearsago.
There are two very good reasons thatthe loan process is much more onerous on today’s buyer thanperhaps any other time in history.
1. The government has set new guidelines that nowdemand that the bank proves beyond any doubt that you are indeedcapable of paying the mortgage.
During the run-up to the housing crisis, many people‘qualified’ for mortgages that they could never payback. This led to millions of families losing their home. Thegovernment wants to make sure this can’t happen again.
2. The banks don’t want to be in the real estatebusiness.
Over the last several years, banks were forced to take on theresponsibility of liquidating millions of foreclosures andnegotiating an additional million plus short sales. Just like thegovernment, they don’t want more foreclosures. For thatreason, they have to double (maybe even triple) check everything onthe application.
However, there is some good news in thissituation.
The housing crash that mandated that banks be extremely stricton paperwork requirements also allowed you to get a low mortgageinterest rate.
The friends and family who bought homes ten or twenty years agoexperienced a simpler mortgage application process, but also paid ahigher interest rate (the average 30-year fixed rate mortgage was8.12% in the 1990s and 6.29% in the 2000s).
If you went to the bank and offered to pay 7% instead of around4%, they would probably bend over backward to make the process mucheasier.
Bottom Line
Instead of concentrating on the additional paperwork required,let’s be thankful that we are able to buy a home athistorically low rates.