For homebuyers today, the paperwork involved in securing a loan is often more painstaking than actually qualifying for a mortgage.
In an effort to avoid substandard loans and underwriting practices, Fannie Mae and Freddie Mac have cracked down on “bad,” or poorly documented and underwritten loans of the past. As a result, most mortgage lenders began greater enforcement of thorough underwriting guidelines and procedures, understanding that the key to avoiding future loan repurchase or buyback losses is to create the “perfect” loan file, as discussed by Mark Greene of Forbes.
Proper documentation is vital to developing a borrower loan file that meets today’s stringent credit and underwriting guidelines. Providing all required documentation requested will help facilitate a smoother mortgage process and help avoid unwelcome surprises.
Borrowers will have to disclose everything about their financial lives, from how much money they have in checking, savings, investments and retirement accounts, to gifts received to help with the purchase of the home. Full disclosure of credit as well as previous home ownership must also be captured to eliminate any potential obstacles to closing.
The mortgage approval process is rigorous for a reason – to avoid defaults and loan buybacks for lenders. [And consequently, should protect the buyers.-SA] These higher standards and strict guidelines are required by mortgage investors (e.g. Fannie Mae and Freddie Mac). Not having a “perfect” loan file can ultimately result in the lender having to buy back the loans at a loss from the investor – a scenario all lenders strive to avoid.
Courtesy of Coldwell Banker Home Loans