Once upon a time in the not so dim and distant past, mortgage application files used to be very thin, but since the collapse of the housing market their size has steadily increased. Even just seven years ago the average file consisted of 100 pages, and some were even thinner, including just the information on the property, and appraisal and credit report.
Nowadays according to the article in CNN Money, the average file can reach 500 pages. This is because it has to include two years’ worth of tax returns, the source of every deposit and two months bank statements. Those on middle incomes may need just a few hundred pages in the file but this number dramatically expands for those people who have several sources of income and business owners.
One of the problems is that since the housing crisis tighter rules have been introduced. This requires a whole series of disclosures to be included in mortgage applications, and these alone can add up to nearly 50 pages. For instance lenders are required to verify the borrower’s identity to make sure they cannot be connected or suspected for laundering money for terrorist groups. It is expected that the implementation of even more mortgage lending rules next January will make the whole process that much more complicated.
Mortgage companies are warning borrowers they now need to triple check everything. Anyone thinking of applying for a mortgage loan next year is advised to make sure they have all their documentation ready before beginning the process. This includes making sure credit reports are free from errors so the process can proceed as smoothly as possible.
Some of the documentation required sounds extreme, and even very wealthy people who have a substantial sum of money in the bank are required to show where every single recent deposit has come from, regardless of how small the amount. Apparently this is due to the fact that Fannie Mae and Freddie Mac are aware buyers are using loans from family or friends towards the down payment, but if this down payment needs to be repaid it will make it that much harder for the borrowers to repay their mortgage.
Checklists used by lenders to help manage the application can be three pages long, and these are also added to the file and are split into various categories such as disclosures, appraisal package, credit package, and items needed before closing can take place. Of course the whole procedure is much simpler if you’re paying cash, but for most of us looking to purchase a family home that’s not an option.