Why on Earth are so Many Forms and Documents Needed to Process a Mortgage?

It seems most people have heard a family member or friend tell them that buying a home ten to twenty years ago was significantly easier than it is these days. Many feel the banks have to know next to everything about us, plus three independent sources that back up each detail on the application.

Two reasons behind the new complexity of the loan process are:

• Because of the many people who were “qualified” for a mortgage that they could never pay back, the government has set new guidelines that now demand that the bank prove beyond any doubt that you are indeed capable of affording the mortgage. The government is doing all they can to ensure that many families don’t lose their homes again. 
• The real estate business is very challenging, and frankly quite scary for many banks. They had to take on releasing millions of foreclosures and also negotiating another million plus short sales, in the past seven years. So, as a result, of course, they are wanting to do all their due diligence and thoroughly review each and every application. 

The above being said, it’s very important to remember that the same problem that caused the tight paperwork requirements, was also the catalyst to record low mortgage interest rates- many times under 5%.

So, while family members and friends probably recall a more stream lined, simplistic loan application process ten to twenty years ago, they also paid a significantly higher interest rate. On average in the 1990’s 8.12% was the rate on a 30-year fixed mortgage. And, 6.29% was the average in the 2000’s. Surely banks would do just about anything to ease the process, if consumers offered to pay them 2% more interest!

At the end of the day, let’s just be thankful that we can enjoy the benefits of lower interest rates, even if it does mean we have to submit a bit more paperwork.

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