Well Qualified and Financially Savvy? Getting a mortgage might be harder for you.February 14, 2017

I have a joke I like to make that a McDonald’s employee will have an easier time getting a mortgage than a real estate investor purchasing his seventh property.  That may not make sense to most – but a lot of what we do as mortgage professionals involves explaining why 1 + 1 might look like it equals 2, logically equals 2, obviously equals 2 but – we need to prove it equals 2 and then document how we proved it at least 2 different ways.

Over the past decade, the average loan file has gone from being 30 pages to over 1,000.  In some aspects, this is for good reason.  Buyers are well qualified now, loan quality is extremely high and far fewer are defaulting on their mortgage payment.  However, with each new set of regulations passed by Congress, the process of obtaining a mortgage has gotten more complex and time consuming.  It’s been argued that these laws aren’t protecting consumers, they are just putting money into the pockets of the lobbyists and attorneys hired by banks to decipher the new regulations and create protocol to remain compliant.  Which many banks have then transferred back to the consumer in higher closing costs – but that’s a topic for a different day.62-300x220For example, in order to obtain a mortgage, a borrower is required to prove employment and income.  The bank is required to verify this by collecting paystubs from the borrower as well as W2s.  Then the bank must verify employment with the borrower’s employer, who will fill out a form breaking down income earned for the past few years.  This is done before receiving loan approval and then again before funding the loan on closing day to make sure nothing has changed.  Yes, all four methods are required.

If above borrower is a W2 employee, like my McDonald’s example – that’s not so bad.  If they already own six rental properties, the paperwork need on each is going to pile up pretty fast.  Or maybe they are self-employed.  Then we will need their tax returns, personal and business for the past 2 years plus business licenses for the past two years.  If they pay themselves from their business, I still need paystubs and W2s.  I’ll need a letter from their CPA to confirm they’ve been self-employed in the same business for 2 years (wait, didn’t the taxes and business license already confirm that?).  Lastly – although I hesitate to ever say “this is my last request” to someone – we need the Profit and Loss Statement for the current year.

So by now you’re wondering if I’m trying to scare you away from ever applying for a mortgage.  Of course, that’s not the case!  I might be encouraging you to write your elected politicians and tell them to stop passing laws that only actually make the process worse but I also have some advice to make the process less tedious for you.   First of all, work with a bank where you will have one point of contact through the entire process.  If you can avoid your file being passed from person to person, then you should be able to avoid documents going missing or someone not understanding your income and asking the same questions you’ve already answered.  Second, choose a lender who knows the current requirements and can give you a pretty thorough list of documents needed upfront.  This way you aren’t having to dig around over and over to meet requests that should have been made in the first place.  How do you know if they know what they’re doing?  Look for someone who isn’t just telling you what you want to hear – if they say the process is painless, you’re probably their first client this year.  If they say they will work as hard as they can to make the process as painless as possible for you – they are a keeper.

My last bit of advice: Always send all the pages of the document.  Never assume that even a blank page is unimportant.  If the bank statement says it’s 7 pages long, we can’t submit pages 2-6 to the underwriter.  The first thing she will presume as fact is that we are hiding something on page 1 or 7. Those pages might be blank, but an underwriter is trained to assume those pages outline the details of embezzlement, fraud and corruption.  So the moral of the story is to work with someone you trust understands this ever-changing system inside and out – so that you all you have to do is provide the documents as requested, while your mortgage advisor puts together the best possible version of you to present for loan approval.