Mitigate Setbacks Associated With The Mortgage Process
By JD Esajian on September 2, 2014
Closing a real estate transaction is not as easy as it looks. Even if you have good credit, a large down payment and a steady income, there are many things that can derail your approval. Some of these items are out of your control, but others should be known before you even make an offer. Lenders have gotten much stricter with their guidelines, causing every step of the process to be scrutinized more heavily than ever before. Even if you have an approval, you are not out of the woods. It is only when you are at the closing table that you can truly feel confident that you are going to close. Be proactive and mitigate any potential setbacks that can occur at a closing.
The basis of the loan approval has not changed. Your credit score, income, assets and down payment are still the deciding factors. What has changed, however, is how lenders and underwriters are viewing these items. All deposit money and assets will be verified and scrutinized over the previous 60 day period. Any large withdrawals or deposits must be accounted for and validated with a coordinating deposit or justification of withdrawal. This could create problems if you are a self-employed borrower or one that deals with cash. If the money is not from an acceptable source, it cannot be used – which will affect your down payment. Having money is not enough. You need to source, season and verify all assets used for the closing.
Another area of potential problems is with the appraisal. Depending on who the seller is and what market the property is located in, there could be issues in this area. You may not find out until the appraisal that the home was just recently bought and back on the market under 90 days ago. Even if the value is there, some lenders may not allow a flip for 90 days, with some under six months. There are also potential problems if the market doesn’t have an abundance of bank owned sales or comparable properties in the area. If the appraisal comes in too low, it will force the buyer to bring the difference to the closing or to have the seller adjust their asking price. Either way this can delay the process for weeks. In a worst case scenario, it can result in one side walking away.
Many attorneys have been burnt with title search fees on deals that do not end up closing. Because of this, they have changed their policy. This means that there could be liens, judgments or other issues that aren’t found until you are well into the process. Some of the liens can be placed by individuals or companies that may have moved out of the area or are out of business altogether. Finding who to pay off could be a real issue. Even if you can locate the lien holder, you will need to have the funds to pay them off to remove the lien. If they are small enough, something is usually worked out, but if they will not settle you may will end up with the entire bill. Lenders will not close until the title is clear and without any liens on title. This step can take a few days or if there are liens it can take weeks. Ideally, you will know about this early on in the process, but that is not always the case.
Even when you are cleared to close and seemingly out of the woods there are always 11th hour issues to worry about. The closing process requires several people to be on the same page and working together. Between the mortgage broker, buyer, seller, selling attorney, buying attorney and lender this is easier said than done. Scheduling is usually done to accommodate the buyer but if either of the attorneys is unavailable this can cause a problem. Getting the closing documents and funds to close can also be an issue. If the documents are incorrect or any of the fees inaccurate this will have an impact on everything else. If they can’t be rectified by the attorneys the documents may have to go back to the lender to be corrected and redrawn. This may push the closing back a day which will again change all of the figures involved in the deal. If there is a rate lock or a future scheduling conflict this can put the deal in jeopardy that you have been working on for most likely several months.
It is important to never assume either a sale or a purchase until it actually happens. In this lending environment there are countless stories from people who waited months to close only to have the deal hit a snag a week or two before the closing. If you were relying on that money to purchase something else or had scheduled work to be done this can be a major setback. Some of these issues can be avoided by get as much documentation over to the lender as soon as possible. Other issues such as the appraisal and the title are largely out of your control and have to be dealt with when they come in. Getting a mortgage is certainly not as easy as it used to be but with the right amount of patience and organization you can get through process and close your deal.