Greater Pasadena home sellers have been quite fortunate with the inordinate number of all cash buyers. Depending on the neighborhood, we see as many 1 in 3 home sales being purchased all cash. However, there are still plenty of homebuyers looking to finance their purchase and that involves a process of pre-approval. With loan approval comes the unpleasant task of collecting a lot of private and financial information to be provided to the lender of choice.
The amount of paperwork is increasing and many of our Pasadena Views Real Estate clients ask why is the amount of documentation so much more onerous than before. KCM Blog has written a great article this morning which I’d like to share since it answers that question.
Via KCM blog: We are often asked why there is so much paperwork mandated by the bank for a mortgage loan application when buying a home today. It seems that the bank needs to know everything about us and requires three separate sources to validate each and every entry on the application form. Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago. There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.
- The government has set new guidelines that now demand that the bank prove beyond any doubt that you are indeed capable of affording the mortgage. During the run-up in the housing market, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again
- The banks don’t want to be in the real estate business. Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.
However, there is some good news in the situation. The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate probably below 5%. The friends and family who bought homes ten or twenty ago experienced a simpler mortgage application process but also paid a higher interest rate (the average 30 year fixed rate mortgage was 8.12% in the 1990’s and 6.29% in the 2000’s). If you went to the bank and offered to pay 7% instead of <5%, they would probably bend over backwards to make the process much easier.
Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.
Before talking to a lender, the first step is to interview and select a real estate agent that will guide you with your home purchase. A great real estate agent will schedule a time to sit down and meet with you and understand your goals and real estate needs. She will also take the time to explain the current market conditions and get you started with very specific steps to move you forward towards your home purchase.
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Irina Netchaev is the founder and managing real estate broker of Pasadena Views Real Estate Team Inc. Irina can be reached at 626-629-8439 and is available to help with home sales and purchases in the Greater Pasadena area.