Getting loan approval is not easy

Mortgage rates on conforming loan amounts up to $417,000 -- $729,750 in high-cost housing markets like San Francisco and New York City -- are hovering close to 5 percent. That's the good news. The challenge is getting through the approval process.

Today, a buyer could have difficulty getting approved for a conforming $417,000 mortgage even though his credit score is high, his debt-to-income ratio is low and he is putting 30 percent cash down. His inches-thick file gets caught in the quagmire of underwriting.

The problem from the underwriter's standpoint is that the borrower has income from several sources. If he was employed by the government and received one W-2 from his employer each year, income verification would be simple.

Self-employed individuals are having a much more difficult time getting approved.

This doesn't mean that you shouldn't apply for a mortgage if you're self-employed, or have multiple sources of income. Just be prepared for a long loan approval process. In one case, the borrower's file took 31 days for underwriting.

You'll be required to document everything, which can include requests that seem ridiculous.

Recently, a borrower with good income and credit applied for a $729,500 conforming loan, but was denied because he had only one credit card. The lender required the borrower to have two credit cards. The lender did, however, approve the borrower for a $417,000 confirming loan.

To qualify for the $625,000 mortgage, this borrower would have to acquire a second credit card, use it a few times, pay the bills on time and wait one year before applying to refinance for the larger loan amount.

Sloppy underwriting and lax lending practices are partially responsible for today's economic crisis. Lenders should qualify and lend only to borrowers who can handle the monthly payments, have a decent equity stake in the property and have a good credit history. We need rational, prudent and intelligent underwriting, not prohibitory underwriting.

THE CLOSING: If you have trouble getting a mortgage, and you know that you're a qualified buyer, call your congressman and wage a complaint. The pendulum has swung too far.

Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.