Home buyers often ask when completing a mortgage application why so much paperwork is required for a mortgage. It seems that the bank needs to know everything and requires three separate sources to validate each and every entry on the application form.

Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to fifteen years ago or more.

There are two very good reasons that the loan process is so much more onerous on today’s home buyer.

1. New guidelines set by the government now demand that the bank prove beyond any doubt that buyers are capable of affording the mortgage. During the run-up to 2008 in the housing market, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again!

2. Banks DO NOT want to be in the real estate business. Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.

However, there is some very good news in the situation. The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate probably at or below 4.5%.

Those friends and family who bought homes ten or twenty years ago experienced a simpler mortgage application process but also paid a higher interest rate (the average 30 year fixed rate mortgage was 8.12% in the 1990’s and 6.29% in the 2000’s). If you went to the bank and offered to pay 7% instead of <4.5%, they would probably bend over backwards to make the process much easier.

Bottom Line

Instead of focusing on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low interest rates.