While many experienced real estate agents have a general understanding of the loan approval process, there are a few important factors that frequently get overlooked, which may cause a purchase to be delayed or denied.
New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary market or investor overlays, rescission deadlines, property type, occupancy type, HOA insurance requirements, title and property flipping rules are just a few of the ongoing changes that can have a serious impact on a borrower’s home loan options and qualifications.
With today’s volatile lending environment, it is crucial for home buyers to get a full loan approval specifying all conditions that pertain to each individual home buyer’s scenario before spending any time looking at new homes with an agent. Most experienced buyer’s agents will require such conditional pre-approval before showing a buyer properties, as will a listing agent before presenting an offer to the seller.
Below are a few of the most important things you and your agent should keep in mind while showing you new properties:
Caution – Agents Beware:
1. Property Type –
2. Residence Type –
Need to sell one home before moving into another? Is a property considered a second home if it’s in the same city? If you are buying a home for your children to live in, it is still considered an investment property?
These are just a few of several possible residence-related questions that need to be addressed by your agent and loan officer at the initial loan application.
3. Rates / Locks –
Mortgage Rates are typically locked for 25 – 40 day period. A fee, and sometimes a substantial one, will be required to extend the lock period. Thus, one of the only ways to get a new rate is to switch mortgage lenders, which causes an undue delay. Rates also have certain adjustments for property type, occupancy type, credit score, down payment, DTI (debt-to-income), all of which could have a big impact on monthly payments and therefore approvals.
Even 0.25% increase in rate for some borrowers could literally mean the difference between an approval or denial.
Underwriters watch the news as well. Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure.
Job changes, gaps in employment, seasonal employment, self-employment, second jobs, property location and comparable sales or lack thereof relative to the subject property, are other things to consider that may cause a hiccup in the approval process.
5. Title / Property Flip –
A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period. Generally, the investor seller will do a little rehab work, fresh paint, landscaping…. and try to re-sell the property for a significant profit margin.
While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.
These rules change frequently, and are specific to particular property types. So, make sure your agent is aware of all the parameters associated with your pre-approval letter.
Some lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented.
It may also take a few weeks and cost up to $300 to receive an HOA Certification. So, make sure your Due-Diligence period is set accordingly in the purchase contract.
Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.
Unfortunately, some of the new appraisal regulations have proven to make the ordering and oversight of the appraisal process less efficient and more expensive, delaying loan approval. It is important for your agent to check with your lender for the estimated time for delivery of an appraisal for the house you want to buy before setting contract deadlines for appraisal delivery and approval.
VA, FHA and Conventional loan programs all have separate appraisal ordering policies and appraisal forms, for which appraisers need to be certified. An initial appraisal may result in certain things that have to be repaired or addressed before finalizing the appraisal, which requires a second inspection by the appraiser. Make sure your agent is aware of which loan you’re approved for so they can cover any delays in the purchase contract.
For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably isn’t smart to write a purchase contract with a four week close of escrow.
Related Articles – Home Buying Process:
- Home Buying Process
- First-Time Home Buyer Credit Checklist
- Assembling Your Home Buying Team – Knowing The Players
- Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction
- Where Does My Earnest Money Go?
- HOA Hurdles to be Aware of When Looking at New Properties
- What You Need To Know About The Home Inspection Process