During the early 2000s, you didn’t need to prove much to qualify for a mortgage.
In fact, it got to a point where it was kind of rare to provide “full documentation” when applying for a mortgage.
The most common doc type at that time was stated income, where a borrower would simply write in their monthly income on the loan application form, without the need for tax returns or pay stubs to back it up.
This was designed for the self-employed and others with complicated financials that didn’t want to provide hundreds of pages of documentation to get the deal done.
These types of loans became extremely popular when home prices surged in value and mortgage payments were no longer manageable for some borrowers.
In order to comply with DTI limits, borrowers simply stated their income and moved on.
Unfortunately, this eventually led to the advent of no doc lending, which didn’t require income, asset, or employment documentation. Instead, it simply required a credit report to determine eligibility.
That Was Then, This Is Now
Today, it’s quite the opposite. Because of the obvious missteps made during the housing run-up, lenders now require all types of documentation to get the deal done.
Most borrowers now need to provide two years of tax returns and two months of bank statements, along with countless disclosures that seem to be growing in number year after year.
In fact, the paperwork situation has gotten so bad that the average mortgage application file now contains some 500 pages, according to Mortgage Bankers Association (MBA) CEO David Stevens.
Included in that estimate are the tax returns, which can easily be 100 pages, along with disclosures, which can total 50 or more pages.
Then there’s the credit report and the asset documentation, the latter of which can be quite extensive depending on how many accounts are submitted to the lender.
And once those accounts are verified, the underwriter might ask for sourcing of funds, or LOEs (Letters of Explanation) for anything unusual.
Along with all that there’s the home appraisal, natural hazard disclosure, title and escrow documents, purchase contract (if applicable), insurance documents, closing documents, and much more.
How You Can Reduce the Paperwork
At the end of the day, you’re not buying a microwave, you’re buying a house, and so the documentation is going to be great no matter how you slice it.
But there are ways you can reduce the load. The best way is to get all your ducks in a row before you even apply for a mortgage.
Yes, disclosures will need to be signed, and reports will need to be ordered. But you can cut down on the amount of paperwork by keeping things clear for the underwriter.
Run your credit a few months before you apply for a mortgage. If there are unwanted surprises, clear them up before the lender pulls your credit.
And don’t apply for any new credit before or during the loan process. That could be grounds for more paperwork and/or flat-out denial.
The same goes for your bank accounts and other assets. Don’t move money around or it’ll just beg for an explanation, aka paperwork.
The cleaner your original loan file, the less you’ll be asked to provide once the underwriter lays eyes on it.
Put simply, be boring and normal. Anything perceived as out of the ordinary will be scrutinized. And you’ll be faxing and scanning documents until the cows come home.
Also remember to provide all pages when asked to submit statements and other documents. Failure to do so will require the re-sending of documents until you get it right.
Finally, create a folder on your computer and label and organize all your loan documents so they can be re-sent to the lender if necessary. Things do get lost in the shuffle, so it’s best to have everything in one convenient place if it’s needed once more.
(photo: Caitlin Childs)