Top 10 Reasons Loans Go Bad
One of my preferred lenders, Kristy Osborn with Service First Mortgage, sent out an e-mail the other day that I thought would be so helpful to both Buyers and Sellers. It really illustrates how there are so many things to think about in the home-buying and selling processes, and how it’s so important to surround yourself with a good realtor, good lender, good title people, etc. when you’re going through it. Getting the contract is not the end of the process! You can breathe a sigh of relief, of course, when you do get that contract, but that’s only half the battle – getting it to close is the other half. How can you ensure that the loan will close? The short answer is that’s it’s never 100% guaranteed (that’s only death and taxes, right?). But, educating yourself on the various issues that could come up during the processing of a loan to buy a house is a great way to help you to understand what it really takes to get that house closed, whether it’s your loan as the buyer or you’re on the seller side. So, in the words of one of my fabulous lenders, here are the Top Ten Reasons Loans Go Bad…
- Got No Time Left– In the market that we are in, one of the #1 ways to sabotage a smooth closing is having unrealistic expectations for the time it will take to close. A minimum of 18 business days from the time we get the contract in our hand (providing that we can order the appraisal and the title work immediately) is the time it takes to close on a home. It is taking 2 weeks to get tax return verifications through the IRS. It is important to also understand that appraisers, title companies, inspectors, underwriters, etc, etc are maxed out in this unprecedented market and over commitment will only lead to frustration.
- Needing 411– Lack of Disclosure/Information– So many times we think of this when it comes to sellers. But when a buyer is not up front with the lender, there is a very good possibility that the transaction will blow up during the verifications. Lenders are required now to verify tax returns, employment, income, and bank accounts as well as various other information. It is vital that the buyers get all their documentation upfront so that there are no surprises at the end.
- Gimme More– Delay of Information/Documentation– The guidelines are tighter, underwriters have no “wiggle room” to overlook any discrepancies and over documentation is the name of the game. Borrowers must get all requested documentation to their lender immediately and upfront and also understand that there is a very good possibility that more will be asked for during the process.
- For What It’s Worth– The art of appraising a home and opinion of appraisals is harder than ever. Lenders want the majority of comps to be within 90 days and second review appraisals are very common (and subject to underwriting discretion). If you cannot find the comps, neither can the appraiser- there is no secret to this :). The old “adage” of if the buyer is willing to pay it then the appraisal should reflect it is no longer true. Bottom line: if the comps are not there, it will not appraise.
- What You Don’t Know WILL Hurt You– Buyers using inexperienced loan officers (or bank or call center “order takers”) to handle the most important financial transaction of their life is like having a 1st year med student perform open heart surgery on them. Don’t let inexperienced loan officers and call center order takers “practice” on your loans. Trust only experienced and knowable loans officers that are highly competent and passionate about their commitment to their buyers and know what it takes to close smoothly.
- Wastin’ Time– Even (and especially because) in this volatile time period in our market, we are continually amazed when realtors and buyers write up contracts on properties without having the buyer be pre-approved through a knowledgeable mortgage professional. Speaking first (not after) with an experienced loan officer before writing up a contract is so important and eliminates wasting the time of everyone involved.
- Calculate This– To make certain that closings go smoothly, it is important to ensure that buyers AND sellers understand their cost involved before agreeing to a contract. This seems to be so simple, yet we see the opposite on a daily basis. It is important for the buyer (or agent) to contact us once they have found a specific home so that we can run the numbers again to make certain that they are comfortable with the out of pocket and estimated monthly payment (and can then call the listing agent and let them know that they have been pre-underwritten as part of our First Assure Program).
- It is NOT Like The Old Days– Currently, Conventional Loans Are Not a “Catch-All” for Distressed Properties– We still hear on a weekly basis “The property has foundation issues; The property is distressed; The property is in bad condition…… so we need to go Conventional”. Did you know that PMI companies (needed on Conventional loans with less than 20% down) are just as strict on property condition as FHA?
- Flip This House– According to FHA and USDA guidelines, a re-sale of property occurring 90 days or less from the date the seller acquired the property is not eligible for FHA insurance. In addition, the contract to purchase this home, using FHA or USDA financing CANNOT be executed until the 91st day. It is very important to understand the Flipping Guidelines so that the closing is not delayed or comes to a screeching halt.
- The Times They Are ‘A-Changin’– It is so important to understand that we are in a market unlike most of us have ever experienced. Guidelines are tighter for credit, income, employment, assets, ratios, down payment as well as other factors. A perfect example of this is that lease agreements are typically not allowed to offset current house payments for those buyers wanting to purchase but keep another property. You need a lender who has the latest information on all guidelines involved in processing and closing a loan.
I’d love to hear from you if you’re wanting to start the pre-approval process or if you have questions about home buying or selling, and I know that Kristy Osborn is also ready to help in any way she can!