Why is Getting a Mortgage so Complicated?
Mortgages are ultimately made possible by investors who are willing to lend to borrowers. If those investors were 100% confident that every borrower would repay their loans in full and on time, the mortgage process could be as easy as making a selection and signing your closing documents. In reality, investors have to find the answer to one simple question: “how could this go wrong?”. It turns out there are a lot of answers to that question! To mitigate these risks, while also accommodating the many unique circumstances clients face, the mortgage industry has ended up with thousands of pages worth of guidelines. Additionally, investors have to abide by thousands of pages worth of federal and state regulations that specifically apply to the mortgage industry. To navigate these concerns, much of the mortgage industry operates on the following model:
1) Investors create guidelines for loans they want to invest in.
2) Lenders create loans that meet those guidelines.
3) Investors agree to buy those loans from lenders.
If a lender creates a loan that does not meet the investor's guidelines, the investor may not buy it. What happens from there can get complicated, but the takeaway is that it can be very problematic for the lender. As a result, lenders are very cautious in ensuring the loans they make meet investor guidelines. And this is where the client experience is affected: the lender will require everything they feel they need to meet investor guidelines before they will fund a client's loan.
Related Common Questions:
Why aren’t all the documents required asked for upfront? We do our best to ask for everything that we think the underwriter will want to clear your loan to close, but more items are typically needed. There are a lot of guidelines for an underwriter to consider, and, since every client has a unique set of circumstances, the underwriter usually conditions for more documentation. Many times, those requests are conditional: the underwriter needs to review the requested documents before making a determination as to whether further items are needed. Also, whenever a loan goes in for an underwriting review, the underwriter can identify an oversight and add the relevant conditions. Lastly, given the guidelines are often subjective, one underwriter could produce a different list of conditions than another, making prediction all the more difficult. Our loan originators minimize this issue by asking upfront for the documentation we know the underwriter will need to approve your loan.
Why am I being asked for documents that weren’t asked for the last time I got a mortgage? There are a number of possibilities, and more than one could apply. A few of them are: a) The guidelines have changed b) Your circumstances have changed c) You are applying for a loan product that has a different set of guidelines d) The property in question is different than the last one Everyone involved in your mortgage transaction wants the same thing: to get your loan cleared to close as smoothly and quickly as possible. If you have concerns with any documentation requested, please reach out to your loan originator to discuss them.
Why have different lenders asked me for different documents? Aren’t they all following the same guidelines? If you were to simultaneously get an FHA loan at two different lenders, for example, you would likely find differences in the documents requested. This is because any lender will take great care to ensure your loan meets FHA guidelines, and those guidelines are subjective. When dealing with subjective guidelines, one lender may be more conservative than another and thus ask for more thorough documentation before approving your loan. Additionally, an individual underwriter could make a determination that results in different documents being requested.
One company rejected my loan application, and then another approved it. How is this possible if they are both following the same guidelines? The level of underwriting conservatism would again apply here: one may determine your file meets the investor guidelines, while another may determine it doesn’t. Some lenders even have what are known as “overlays”, which are additional guidelines imposed by the lender (generally to avoid subjectively determined loan approvals getting rejected by investors later). That is why it is important to work with a loan originator who understands the underwriting process. When faced with obstacles in underwriting, a good loan originator will investigate the guidelines themselves and even call the investor to seek clarification. They will then find a path forward and present their case to the underwriter. If the underwriter rejects the proposed solution, the loan originator could escalate it to the head of underwriting. At Twilight Home Loans, we could even then take your file to another lender if necessary. We would present the issue to our whole network of lenders to find one upfront who is able to clear the issue and then move forward with them.
I was told the underwriter “needed” a document. I couldn’t, or refused to, produce it. Then they cleared the condition without it or with alternative documentation. What happened? There are many underwriting guidelines that provide different documentation options. Rather than approaching the client with the options, lenders will generally condition for the document that most easily and objectively satisfies the guidelines. If a client either cannot or is unwilling to produce that document, then the lender will consider alternatives. Sometimes, further documentation is needed but another document or combination of documents will do the trick. Other times, a lender may exercise discretion and approve the loan without further documentation, although their preference would be for an objective approval that the document requested would have provided. If you are unable or unwilling to fulfill a document request, the next best step is to contact your loan originator to discuss why. We will do our best to find an alternative that best meets your needs.