As the housing market continues to recover, many borrowers are finding there are more hoops to jump through to qualify for a loan. But according to lenders it’s not necessarily harder to get a loan today, you’re just required to submit more documentation, and to keep it updated through closing. The added paperwork is in response to the many bad loans and fraud during the crisis years. According to an article in Forbes, most failed loan applications fail because they don’t meet the rigorous documentation requirements, not for lack of pre-qualifying (Forbes, “The Perfect Loan File,” 3/9/12).
The reasoning behind the renewed focus on documentation is simple; greater documentation equals less likelihood that the borrower will default or that the lender will have to buyback a bad loan. According to government data, the increased documentation standards have reduced defaults by 20% in Fannie and Freddie loans originated in 2009 versus 2007.
So when you’re ready to search for a home, you need to start documenting every last penny of your financial life, and give your lender exactly the documentation they ask for. From the beginning of the process be sure to disclose everything, even the small details, to ensure that your lender can qualify you for the right loan for your underwriting considerations. You should also discuss with your lender any planned financial transactions around the time of closing, as changes in your accounts can impact the terms of your loan; even buying new furniture, or applying for a new credit card can impact your loan–check with your lender first!
For current or previous homeowners, underwriting standards vary based on a number of factors, and you should disclose whether you’ve sold in a short sale in the past 3 years, or whether you plan to keep a home as an investment or rental property.
Wherever you are in the process, check out the article in Forbes gives some good perspective on the ins and outs of satisfying the rigorous documentation standards in the current lending landscape. With the right preparation and determination, you can make it happen!