Why is it so darned hard to get a loan approved these days?
Special to The Business Times from Cherry Creek Mortgage
Those of us in the loan business hear this question every day. The truth is that it is harder to get a mortgage loan approved today than it was a few years ago. It used to be that with good income, credit and assets, getting a new mortgage was a breeze. And even though the qualifying guidelines are more stringent now, one of the more difficult aspects of getting a loan approved is the documentation itself.
You’d think that underwriting guidelines would be designed to show a person’s ability to pay back the loan and pay it on time. But, in fact, the real goal of current underwriting is to assure that the loan package is absolutely perfect. The reason is loan repurchasing, which came about when Fannie Mae and Freddie Mac went back and audited their loans after the financial crisis and discovered that many loan packages had substandard documentation or even fraudulent representation of income and/or assets. Fannie and Freddie then started requiring the originating lender to “buy back” any loan that had substandard underwriting.
The mortgage companies and banks that survived have since put into place underwriting guidelines and procedures to eliminate any risk to themselves of having to buy back loans—the result being an explosion of documentation required for all loans.
What to expect in while applying for a loan today…
Your loan officer will ask a series of questions regarding income, employment history, assets and credit to determine if your qualifications meet current guidelines, and then will gather the initial documentation needed for loan approval.
Next, your file will be run through a computerized underwriting system which will issue an initial approval along with a list of specific documents needed.
The loan officer will have asked for your bank statements, pay stubs and possibly tax returns. Each deposit or transfer on your asset statements will be scrutinized and you will be asked to explain and document each and every one. And you’ll be asked to provide letters of explanation for any inquiries and/or derogatory reports on your credit report.
But wait…there’s more!!!
You’ll be asked for all pages of your bank statements—even the blank pages. Don’t decide that that’s just silly and not necessary. It is necessary and it is required. Loan applications have been rejected simply because blank pages were missing!
You’ll also be asked for your most recent paystubs 30 days prior to closing, and for updated bank statements to prove that your earnest money has cleared the bank.
If you currently own a home and are planning to keep it as a rental after the purchase of a new home, you may need to provide additional documentation and meet requirements for income, down payment or assets.
So, don’t kill the messenger…
You’re only being asked for what truly is required these days for loan approval. And you can make your life easier and the loan process go more smoothly by giving the loan officer exactly what they ask for.
Your broker is there to help you! Call your licensed mortgage broker with any questions you may have. They’re here to help you navigate the new guidelines and documentation requirements and to make the loan process as easy as possible.
Sherry Heburn-Smith is the local branch manager for Cherry Creek Mortgage.