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Why 92 percent of mortgage applications sail through the system

| Money Rates Columnist.
min read

Are you afraid of mortgage rejection? Is the thought of paperwork and financial scrutiny just the least bit scary? Does looking for the best mortgage rate seem like a daunting task?

Well Relax, the odds are overwhelming that you'll sail through the mortgage loan process.

How do we know this?

A study by the National Association of Realtors (NAR) tells us some interesting facts about mortgage applications. In the 2010 edition of their Profile of Home Buyers and Sellers they explain that 92 percent of all buyers get a mortgage with one application. Repeat buyers get financing on the first shot 93 percent of the time and first-time purchasers have a 91 percent success rate.

It turns out that only 3 percent of all applicants have been rejected by at least two lenders. Seen the other way, 97 percent all applicants finance and refinance successfully with little trouble.

The information from NAR is interesting for two reasons:

First, if you have worries about applying for a mortgage forget it. The odds are overwhelming that you'll be successful. Second, the results were supposed to be very different after passage of the Wall Street Reform Act last summer.

New rules

Under Wall Street Reform, lenders are welcome to make loans with low-doc and no-doc mortgage applications. However, if they do they can potentially be sued by borrowers and foreclosures can be delayed if not de-railed. If you're a lender and adverse to risk then the last thing you want are mortgage quotes or loan applications that have the potential to blow-up in the future.

The result is that virtually all lenders now play by the same rules when it comes to loan applications. Forget about low-doc and no-doc loan applications. Somehow, magically, the claim that such applications were as necessary for self-employed borrowers has disappeared. Somehow employed borrowers who used such applications now fill out all the forms.

Form requirements

The new loan application process is not a big deal. It's just like the old full-docs application system, the system used for Federal Housing Administration loans, VA loans and most conventional financing.

Lenders will want to verify your employment and income. Verification and a loan file full of documentation is now essential for lenders to avoid future liability. Lenders will want to assure that you're employed and they will want W2s, payroll stubs and past tax returns to check income.

Since most lenders now offer only conventional, VA and FHA financing, and since such financing packages are identical, the big job is to compare mortgage rates.

If you're in the market for a home loan be sure to follow mortgage quotes daily. Why daily? Loan rates can swing up or down with some speed in response to current events. In the past few weeks, for example, mortgage rates rose roughly 2/3rds of a percent--a big jump over a short period.

The more you know about rates the more you can better understand lender offers. If a mortgage quote from one lender is substantially higher--or lower--than other lenders then a red flag should be raised.

katherine dimacale 8 April 2015 at 1:44 am

I need help with this too! Thanks. BTW, if anyone needs to fill out a form 1084, I found a blank form here http://pdf.ac/6LDv8

Brandon 15 February 2013 at 8:30 pm

I guess I am one of the only self employed borrowers that has been completely screwed by the loss of the low doc loan. The main issue is nobody seems to understand how to use form 1084 to assess depreciation from the standard mileage deduction, and there is no way to add back excess deductible operating expense from the SMD as well. This is a perfect example of over compensating in the opposite direction. If 1 person could please explain why my tax return paints a more clear picture of my finances than bank statements and pay stubs, aside from a lazy "its easier" I'd love to hear it.