One of the major frustrations in acquiring home financing these days, is the never-ending need for documentation during the loan application process. This seems to be because the lenders’ questions and requests for documentation seem so redundant. Home buyers feel they are asked the same questions over and over and must supply the same information two and three times during the course of the loan application process in the Kansas City area.
This is occurring because lenders are not looking for the same things to create a “perfect file” as they used to be before the housing crash. Whereas in the past, perfect credit scores always were the guarantee for the loan approval, today the game has changed. Documentation to the nth degree is what they now need. When I mean documentation, I mean that perfect documentation (and plenty of it) weighs more heavily in your favor than perfect credit! If you are planning to apply for a loan, the best way to avoid frustration is to accept the fact that you will scan, photocopy, fax, and deliver every aspect of your financial life to the lender to initiate the loan approval process. Then, once your loan approved, the home inspections have been completed, and the closing date is set, you might have to do it all again because the documents cannot be older than 30 days in many cases!
It seems crazy to the common home buyer in Kansas City, but to the lender, it is the new Standard Operating Procedure. As a result of so many lenders suffering staggering losses (even to the point of being forced out of business) from having to buy back “bad” loans, the entire game has changed. A vast majority of these loans should never have been approved, but they slipped through the approval process because of substandard and fraudulent underwriting practices. In the end, the lenders have now taken steps to make sure each loan application is fully, completely, and thoroughly documented for approval, so that once it is approved, it fullfills all the lending requirements. The responsibility to provide all these myriad of forms and documents required by the lender, falls to you, the buyer.
More important than 1) excellent credit, 2) a down payment, and 3) stable employment with income to support your debt service to guarantee your loan approval, is the ability to provide a borrower profile that meets the underwriting guidelines of the specific type of loan for which you are applying. Also, you must be able to hard-copy-guideline-document your profile. Every jot and tittle of your financial life will be examined, re-examined, and triple examined in order to satisfy the lender that your loan will not be subject to repurchase.
The processors and underwriters are the folks who do all the data-gathering and will be making all the requests for information. They act as a filter to qualify the buyer, evaluate all the papers, validate your documentation, and make the final call for approval of the loan. These folks are well-trained and experienced in assembling the proper information for each specific loan type. They are the ones who see to it the loan requirements are completely satisfied, and then make the decision which will make or break your deal. They must have the proof that you, as the applicant, have all the necessary documented capability to assure them you will be able to repay your loan.
The process begins with your pre-approval call to the lender which will include a comprehensive telephone interview. These questions are critical in the process and you must disclose everything. Many things must be determined at this time. Expect to answer all kinds of questions about your employment, salary information, investments, and more. Every asset you have: savings, investments, retirement accounts, etc. will need to be validated. Whether the property will be occupied by yourself or will be an investment property determines the type of loan for which you will apply. Buyers with a short sale history may have to wait several years before being eligible for financing and approval once again. It all comes down to your proof. If the lender asks for specific documentation, you must be sure that you are providing exactly what has been requested. Buyers who furnish something they think is “close enough” to what is being requested, will find they will experience costly delays in being approved or even potential rejection.
Avoiding defaults and loan buybacks has become the primary goal of the mortgage industry. Making sure you are prepared to comply with every lender request, whether or not it makes sense, seems important or appears to be redundant, will make your application process go much more smoothly……and get you to your goal of loan approval more quickly! Just remember the lender’s requests are not personal and you just need to make up your mind not to fight the new system, and the entire process will be much more efficient for you!