Pay stubs. Tax returns. Bank statements. Lists of liabilities and assets. Credit card statements. Loan documents. Affidavits. Investment statements. Gift letters. Purchase contract. Property tax assessments. Landlord/rental history. Retirement account statements. Driver’s license. Social Security card. And now that you have submitted all of that, you have to do it all again with updated copies.
As much work as it takes, it’s almost like mortgage lenders don’t really want to give you a loan. I assure you, that’s not the case…… usually.
Many people that I talk to who are going through the mortgage process for the first time are a bit flabbergasted at the amount of paperwork and documentation that they have to turn in just to get approved for a mortgage. It seems like lenders might just enjoy the pain and frustration they inflict on their potential clients. But there is so much more to it than that.
Why all of the requirements for submitting paperwork upon paperwork? To explain, let’s take a look at some history.
Back in the day, like 2008-2009, we had a bit of an economic crisis in the United States. While it was quite far reaching, much of it seemed to be centered on the mortgage industry. To be more specific, much of it was centered on high-risk sub-prime mortgages.
You see, it was much easier to get a mortgage prior to 2008.
There were VOI loans – “Verification Of Income”. As long as your income was over a certain amount, you qualified for the mortgage regardless of just about everything else going on in your life.
There were VOD loans – “Verification Of Debt”. Is all of your other debt under a certain amount? Then you qualify for the mortgage regardless of anything else like, you know, income.
There were even loans that required nothing more than you verifying you had a pulse. If you’re alive, you get a loan. Whatever situation you are in right now, surely you’ll get it figured out by the time the first payment comes due.
Even with those lenders that did have more complex requirements involving a combination of income, debt limits, and credit score, they might often simply take your word for it. So ballpark is fine, if you know what we mean.
Yes, it was much easier to get a loan back then.
But then 2008 hit. It was July of 2008 when things really tanked out. I know because it was also July of 2008 when I hung my shiny new real estate license up in my new office. Great time to start a new business!!! (Insert sarcasm here.)
As the markets crashed, lenders really tightened up on a lot of different requirements. While many of those requirements have relaxed some towards a healthy equilibrium, the paperwork requirements have gone the other way.
If you are considering the purchase of your first home, I’m sorry to say that the required paperwork isn’t going away.
BUT THAT’S A GOOD THING!
Lenders require the paperwork for much, much more than just watching you writhe in the pain of documentation. Their accountability to the federal government requires that they verify that you are most likely going to be able to maintain the mortgage they are about to give you.
They want to know that you have enough income to pay for it and few enough other debt payments that otherwise might require you to make difficult choices. They want to make sure you have a history of being responsible with credit and housing. They want to make sure you have a history of income to keep this new mortgage sustainable rather than evaluating you on just a temporary bubble of extra cash. They even want to verify you are who you say you are. It’s that whole ‘identity theft’ thing.
Yes, it can be downright painful to get through the mortgage process. But to be totally honest with you, once you make it through closing (a whole other ball of wax), you will get to moving in to your new dream home, get settled and make it truly yours, and you will probably forget about most of the lending process all together. In the bigger picture of life, it won’t really matter much.
Painful? Maybe. But there are many worse and more enduring issues in life. After all, the lender is simply making sure you won’t (or at least are less likely to) go through the pain of delinquency, default, foreclosure, bankruptcy, and everything else that comes with all of that.
It’s kind of like going to the gym – you may feel the burn at the gym, but you’ll come out stronger after a day or two of healing.
If you would like more information about the home buying process, the Center for Financial Resources offers Homebuyer Express, a class that looks at many different purchase-related topics. And if you still aren’t happy about the pain of the paperwork, we usually have a lender that presents part of the class. You can lay it on them. If classes won’t work, call CFR at 605-330-2700 to find another option.
written by Breck Miller
images courtesy freedigitalphotos.net