Whether this is your first time going through the approval process, or your 10th, odds are it is different than it was the last time you did so. There are two main reasons for this:
- The government has set forth new guidelines that now demand the bank to prove beyond any doubt that you are indeed capable of affording this mortgage and showing an ability to repay the loan. Leading up to the housing collapse, many people and families were approved for loans that they were not capable of sustaining. The government is looking to ensure this does not happen again
- The banks do not want to be in the real estate business. Over the course of the housing bubble and collapse, banks were forced to take on the responsibility of liquidating millions of foreclosures and negotiating millions of short sales. Just like you, I and the government, they do not want any more foreclosures and they avoid this by double checking everything on your application as well as looking for 3rd party verification for most important pieces.
One can argue that the banks clearly made the mistake of being too liberal in the guidelines over the past decade, and now could potentially be erring on the side of caution with the conservatism, but there is a silver lining to this. If it were not for the housing collapse, banks would not be as strict as they are on their paperwork requirements, and many people would not be able to obtain a mortgage with an interest rate at a historically low levels. Rather than focus on the additional paperwork and documentation requirements, let’s be thankful that we are able to purchase homes at these low rates.