One of the biggest complaints consumers have had in the last ten years about getting a residential home loan is the continual jumping through hoops and requests for documents and paperwork. For some, this can be quite inconvenient, borderline stressful, and can really test one’s patience, especially when dealing with something tedious, unfamiliar, and sometimes perceived as unnecessary.

If we rewind the clock for a moment, the Dodd-Frank Act—let’s call it the federal government for short—created the Qualified Mortgage (QM). The Qualified Mortgage is a full documentation loan for a primary residence, single-family home that maintained a debt-to-income ratio of 43%. Anything above this became a non-QM loan. Technically, today, debt ratios can be as high as 50%, and FHA and VA loans allow debt ratios even greater than 50%. But for the context of this discussion, the increased scrutiny to provide another element of a Qualified Mortgage, which is ATR (Ability to Repay), is a really big deal.

The Ability to Repay requirement means the borrower must provide documentation to the lender so the lender can prove, at the time of application, that based on the borrower’s cash, credit, and capacity, they have the ability to actually afford the loan. If the loan was made and documentation was overlooked, forgotten, or misplaced, the lender is exposed to legal risk because the consumer could turn around and sue the lender. This was designed to help the borrower but has actually made the process more stringent because lenders, not wanting to face legal exposure, put additional layers of underwriting requirements and investor overlays in place to ensure they double- and triple-check borrowers and their documentation.

When lenders across the country lend out billions of dollars on an annual basis to millions of homeowners, one mistake on a loan can expose a lender to losses, sometimes in the hundreds of thousands of dollars. This risk adds up quickly. As a result, for consumers, the Qualified Mortgage and additional layers of lender requirements have created a situation where borrowers feel like they have to “jump through hoops” to provide the same documents more than once throughout the mortgage process, sometimes during a 30-day close of escrow.

Furthermore, because it’s a full documentation loan, some conditions can create even more conditions. For example, if you’re asked to provide a Schwab account statement, and inside that account is a cash deposit that is undocumented or unsourced, that could be problematic if that money is needed for reserves or to close. The underwriter will call it out, and depending on the loan product, this could create additional conditions. So, instead of just being asked for an updated pay stub, Schwab account statement, and insurance, you may be asked to source that cash deposit, which can turn one condition into three. If you don’t have the funds and a family member is giving you a gift, you may need to provide a gift letter and proof of the donor’s ability to give you the money—adding yet more conditions.

Many borrowers don’t realize that moving money or spending money from certain accounts can create issues for a mortgage loan. Often, borrowers apply with a lender who simply takes the application and documents but doesn’t guide or coach them through the process. Without discovery questions or proper guidance, borrowers could experience unnecessary conditions, leading to headaches. This highlights the importance of working with an experienced mortgage professional with a proven track record.

While there is no “utopian” mortgage company or professional that eliminates all conditions, the difference lies in whether those conditions are normal and manageable or overwhelming and excessive. A typical home loan approval might come with five to seven conditions, which is normal. However, a loan approval with 18 or 19 borrower conditions is not typical and may indicate that the loan wasn’t packaged or submitted properly. This can happen when there’s pressure to meet a purchase contract deadline, leading to a rushed loan submission.

At the end of the day, you want a lender who will ask the right questions about your funds, where they are coming from, and how they are getting to escrow. If you’re unsure, tell the lender, and let them guide you through the process. Some mortgage companies do this, and some do not, so it’s important to be selective. Understand that buying or refinancing a home is going to be somewhat inconvenient, and providing the same documents more than once is to be expected. However, multiple rounds of conditions without clarity on when the loan will close should raise concerns.

Finally, it’s also important to have reasonable expectations when selecting a mortgage company. Most reputable mortgage lenders work Monday through Friday from 8 AM to 5 PM because they, too, have families and personal obligations. If you want quality advice, figure out how to work within that framework and partner with a professional who can give you the guidance you deserve.

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