Even if you pay your bills and don't pile up a lot of debt, applying for a home mortgage has always been like going through a financial inquisition.
There's the paperwork: tax forms, W-2s, pay stubs, property records. There's the prying: "And why were you late on your Visa bill last January?" There's the wait: up to 30 days.
Starting next year, that's going to change.
New computer technology likely to be in wide use in 1995 promises to make home mortgages a lot simpler _ like getting a car loan now. It should also cut your costs.
Instead of waiting a month, you'll be able to close on your loan in five days. You might even get overnight approval. You'll need far less paper _ pay stubs instead of tax forms. A computer will evaluate your credit and eliminate some of the nosy questions.
"I didn't feel as much under a microscope," said Doris Rogers of Santa Rosa, Calif., who in May got a high-tech, low-hassle loan from Monument Mortgage, a lender testing the new process.
Rogers is a psychotherapist. She and her husband, Jesse Boggs, a theater director, both earn part of their income from self-employment. That made them suspect to other mortgage lenders. One even asked her to produce a copy of her master's degree. Monument, based in Walnut Creek, Calif., approved their loan within a week.
"I didn't feel like we had to be apologetic about our lives, about our not having chosen to be employed by the post office for 25 years before applying for a mortgage," said Rogers.
Greater efficiency from computerization should yield savings that lenders can pass on by cutting "junk fees" or lowering interest rates. The new systems are being put on-line by big financial institutions like Freddie Mac and Fannie Mae, and also by private lenders.
"What it means is we don't have to torture customers as much for documentation," said Donna VanOsten of PHH US Mortgage Corp. "They can concentrate on day-to-day family issues that have to do with a move, instead of worrying about whether they need their W-2s from 1990."
Like Monument, New Jersey-based PHH is one of several lenders testing a system designed by Freddie Mac, a government-chartered company that helps raise mortgage money from investors. Peter Maselli, a Freddie Mac executive, says the system will be sold to lenders in early 1995, and borrowers should notice a real difference by the end of the year.
"You will start seeing cheaper, streamlined mortgages become pretty widely available," said Maselli. "We feel pretty comfortable that we can get $500 to $1,000 out of the cost of a mortgage."
With the new systems, borrowers still fill out a loan application and provide pay stubs. After that, everything changes.
A computer will check your credit record and use statistical models to analyze your ability to pay the loan. Computers will also check the value of the home you want to buy, and any property you are selling. Eventually, computers are expected to handle much of the appraisal and title search work, cutting time and costs.
Freddie Mac's system can make a decision to approve a loan in as little as four minutes. Lenders testing the system say 40 to 50 percent of the loan applications get an immediate "green light," and the rest are referred to loan officers. About half of the referrals turn out to be minor problems.
Maselli says he believes the instant approval rate will eventually reach 75 percent.
Monument Mortgage president Jim Noack says his company shaved one-eighth to one-quarter of a percent off the interest rates charged to borrowers.