Why does it seem hard to get a Mortgage now? Straight info to help you navigate the loan process with minimal annoyances

Do you ever wonder why lenders want certain documents during the loan process? Many times, it doesn't seem to make any sense at all. Sometimes, it even seems silly. Why don't they take "your word" on things? Why do they zero in on certain issues when looking at your loan request?
Lending isn't really mysterious. The one thing that has always been in place for mortgage lenders is the fact that their guidelines are all based on the Risk of Default.
It's all about the Statistics, Plain and Simple. There are plenty of number crunchers (Actuaries), that understand in great detail, what elements of a borrowers profile typically lead to defaulting on a mortgage loan. Default means A) Making late payments or B) Allowing the mortgage to go into Foreclosure. There are plenty of "stages" in between those two basics, but you get the idea. Look, you were given the mortgage, right? Since the bank is not engaged in a non-profit business, they expect to be repaid - Timely and In Full. It's reasonable, and no different than if you were to lend several thousand to a friend. You expect to get repaid and with minimal collection efforts.
Let's take a look at the basics of the Four C's, which have been around for quite some time. Ignoring the basics of these principals is something that contributed to the Housing Meltdown. But... I am not writing this to editorialize on the collapse. I write this because there are still many who are shocked and annoyed by the current process of obtaining a mortgage. Remember, the Four C's are actually not something new. We just need to re-visit them every now and then....
Credit History - Late payments on debts in the past not only reduce a credit score, but also indicate a disregard for maintaining a good credit rating. To a lender, this could mean future delinquent mortgage payments or even a total default (foreclosure).
Lenders expect that they will be repaid on a monthly basis. Banks don't want to take your home back! It's too expensive for them to hire attorneys and pay court costs. Although there may be situations that are out of a borrowers control in terms of resolving disputes, items on a credit report that are of the most concern to lenders are: Judgments, late payments on prior mortgages are high on the list of concerns a lender may raise in approving your loan. Think of it this way, why would a lender expect to be paid on time if you have been late on a mortgage before? Late payments on installment loans such as autos (it's a recurring payment that you should clearly be aware of), credit card lates and medical collection accounts are only slightly more forgiving.
Capacity to Repay - Income/Employment - Does the income source have a solid history? Is the likelihood of it continuing viable? Borrowers who have not been in the same line of work consistently for 2 years are viewed as a risk to lenders because the borrower may not be making stable employment choices and could end up making a bad one - leading to missed mortgage payments. Lenders do recognize those that have been in college and also those who have changed jobs, but in the same line of work.
If you have a second job, the income from that is generally not allowed unless you have a two year history of receiving it. Why? Well, plenty of people attempt to work two jobs, but it can be difficult to maintain over a period of time. This is why a lender won't allow this to be included in qualifying income. You must be able to demonstrate that you can handle it. Remember, it's all int he statistics!
Cash - Assets Available - Do you have sufficient funds of your own for the down payment and closing costs? Gifts from family members are just fine in many cases, but borrowers that have cash of their own as down payment are statistically less likely to go into default.
This is also why lenders frequently like to see reserve funds available after closing - to reduce the risk of a borrower having a first payment default. In other words, lenders don't want you to drain all assets just to get into a home and then have no assets remaining in the event that expenses have changed surprisingly. Sometimes borrowers can get so caught up in the excitement/expenses of a new home (furniture, appliances, etc.) that they don't leave enough funds available for their very first payment.
Collateral - The Property - Lenders look carefully at the appraisal of the property to determine whether the purchase price/value is consistent with the area. The appraisal is based on homes very near to the property in question that have similar style, room count, amenities, upgrades. Why?

Consider this double-duty protection for you and the lender. You both want to make certain that the home is properly valued and no one is getting taken for a ride on the purchase price or condition of the property. For example, one cannot say that a property in pristine condition is valued the same as another down the street that has deferred maintenance (i.e. bad roof, leaky basement, lack of upkeep/upgrading, etc.) Lenders need to know that they have sufficient collateral for their loan. Collateral means what they "get" if a borrower defaults - a property that has enough value to pay off the debt that they originally agreed to - the loan to you.