Consumers Think Mortgages Are Too Hard To Get
Is it hard to get approved for a mortgage today? Data says no. Consumers say “yes”.
According to a survey of TheMortgageReports.com readers, nearly sixty percent of those responding said that, in today’s housing market, it’s “too hard to get approved” for a mortgage.
The sentiment appears to contradict data, however.
The quarterly Senior Loan Officer Survey, which is published by the Federal Reserve, shows that U.S. lenders have steadily loosened prime mortgage guidelines since 2012.
In addition, the most recent Origination Insight Report from Ellie Mae, a mortgage software firm which helps to process more than 3.7 million mortgage applications annually, shows more loan applicants making their way to closing than during any period this decade.
Lenders have removed the hurdles to a mortgage-loan approval this decade, and now support a myriad of low- and no-money-down mortgage programs.
If you’re a consumer and you’re worried about getting an approval for your mortgage, maybe the best advice is: “Just apply”.
Getting a mortgage approval may not be hard at all.
How Are Mortgages Approved?
In order to understand the mortgage approval process, we should start by answering “What is a mortgage?”
The textbook definition of mortgage — interest in a home, given in exchange for a loan — can be confusing because it’s not how we think of the role that mortgages play in housing.
It helps, then, to think of mortgages as loans to finance real estate.
For example, if you want to purchase a home and don’t want to use cash to buy it outright, you can give a mortgage to the bank in exchange for loaning you the money you need to buy the home.
The terms of a mortgage loan will vary by bank and by product (which is why it’s recommended to “shop around”).
However, the process of getting approved for a mortgage is fairly standard.
- You tell a bank you’d like to apply for a mortgage
- The bank verifies that you meet the loan’s minimum qualification standards
- If your loan meets minimum standards, the mortgage is approved
From start-to-finish, the mortgage application process can be completed in a week, or can take up to two months or longer.
Here’s how it works.
Giving A Mortgage Application
First, when you’re ready to begin your mortgage application, you’ll contact one or more mortgage lenders to give a formal mortgage application.
A formal mortgage application covers seven main areas — all of which are considered as part of your mortgage loan approval.
These areas include your name and date of birth; your employment history; your annual income; your residence history; and, information about your savings and retirement accounts, among others.
There’s no need to specify to which mortgage program you’re applying at this time.
You are welcome to indicate to the lender that you prefer a low-downpayment loan or a no-money-down loan, as examples, but right now, you’re just giving the basics.
With Your Lender, Decide Which Loan Program Is Most Suitable
Next, after your application is complete, the lender will likely ask if you have a downpayment preference and more specific questions about your financial goals.
Don’t worry if you don’t have all the answers at this point. A good lender will ask the right questions and help you determine the best path and choice for you.
For example, if it’s important for you to make as small of a downpayment as possible because you have good income but not much saved in the bank, your lender may recommend a program such as the Conventional 97 loan, which only requires a down payment of 3 percent; or an FHA loan, which allows for down payments of 3.5 percent.
Or, if you have a 20% downpayment but qualify as a “military borrower”, your lender may recommend that you use the VA home loan program via your VA benefits because VA mortgage rates tend to beat conventional mortgage rates by 30 basis points (0.30%) or more.
Underwriting Your Mortgage Application
Once a loan program is selected, your lender will begin to underwrite your loan. To “underwrite” a loan means that it will verify that the borrower meets the loan program’s minimum qualification standards.
Minimum qualification standards vary by program.
The FHA mortgage program, for example, requires borrowers to have credit scores of at least 500 whereas the zero-percent down USDA mortgage program requires a minimum credit score of at 620.
As another example, conventional mortgages require private mortgage insurance (PMI) for all purchase loans with a downpayment of less than 20 percent. VA mortgages, by comparison, never charge mortgage insurance — even when the borrower chooses to put no money down.
Author’s Note: PMI is not necessarily bad.
Matching your mortgage application to a loan program’s underwriting guidelines can be challenging for an underwriter. Guidelines change frequently, and staying on top of those changes can require extra time and effort to make sure you, the borrower, are getting the best possible outcome.
Getting Your “Final” Mortgage Loan Approval
Remember — lenders are in the business of lending and lenders can’t lend unless underwriters approve loans. However, lenders also want to be sure that the loans they make to customers are good loans.
What’s a “good loan”? A good loan is a loan which meets minimum qualification standards without a doubt.
This is an important point.
Sometimes, mortgage underwriters will go to great lengths just to make sure that your loan meets such standards.
As a result, as part of the approval process, you may be asked to provide supplemental information about your job; or, about your income; or, about your bank accounts; or, about anything else included on your application.
At times it can feel onerous or cumbersome. It can also appear nit-picky.
However, an underwriter will never request paperwork it doesn’t need in order to approve your loan; and will request every piece of paper it does need. It’s all a part of the process.
Once your application has been verified against the mortgage program guidelines, it’s “approved” and cleared-to-close.
A loan which is “cleared-to-close” can be prepared for closing; and monies for the loan can be sent to the settlement table.