Things That Can and Cannot Be Controlled During the Financing Process
By Doug Goelz, Mortgage Services
After years of being a mortgage broker, I can still find the financing process frustrating, so I am very sympathetic to the frustrations of my clients. I try to limit frustrations of clients by setting their expectations properly up front, especially about the things that can be controlled and those steps which cannot. Here are a few things in the financing process that can’t be controlled completely:
INTEREST RATES – Rates move daily in response to the bond market, which in turn reacts to economic and other news.
What can you do about rates?
You can always pay points (a fee paid to the lender) for a lower rate, but clients are subject to the rates offered on a particular day.
If you are refinancing, you are free to choose when you lock your rate. Not satisfied with rates today, this week, or this month? Wait to lock or refinance at a time when you like the rate.
If you are in contract to buy a home you generally have about a 2 week window during which you need to lock your rate. You can watch rates for a few days, but if you are going to buy now, you will need to accept the rates offered now by the market. Think rates will be better in the future? Buy now using a low rate Adjustable Rate Mortgage, and refinance later with a fixed rate loan when rates drop.
LOAN GUIDELINES – The guidelines that lenders follow when approving a loan are well documented. Underwriters have some discretion, and exceptions can be made in some circumstances if borrowers do not meet the guidelines.
The purpose of a pre‐approval is to get as much information as possible so the mortgage broker can consider the borrower’s finances as an underwriter would. A good mortgage broker should be able to identify potential issues that might prevent a loan from being approved, and discuss a possible resolution before a buyer gets into contract.
Nevertheless, once you are in contract, when your loan is being underwritten, new information, complex financial situations, and/or an underwriter’s interpretation of the facts can cause a loan to be denied. If a loan is denied, your mortgage broker can work with you and the lender on a possible resolution, or switch to another lender for whom the issue is not a deal‐killer.
What can you do about the guidelines?
No lender should expect the borrower to understand the hundreds of pages governing approval of a loan; your mortgage broker should understand the guidelines and help you navigate them. The best thing you can do to meet guidelines is to let your broker know all the facts up front. If your situation doesn’t meet guidelines, your mortgage broker should be able to help you plan a course of action so that you can get a loan in the future. Getting prepared to get a loan can take years if credit issues have to be resolved and/or more income needs to be shown on tax returns.
APPRAISED VALUE – Appraisers determine the value of a house for the lender using recent sales information of similar properties in the neighborhood. They have to justify their value using information from the “comps.”
Occasionally, appraised values come back below the purchase price. When this occurs, it is possible to submit an appeal of the appraised value by providing documentation supporting a higher value. However, in my experience, when an appeal is submitted, appraisers generally stick with their original appraised value.
What can you do about the appraisal?
When the appraised value is below the purchase price, several things can happen: the price is renegotiated; the deal dies; the buyer comes up with enough cash to allow the financing to work; the buyer switches lenders and gets a new appraisal.
When you buy, if there is any question about whether the property will appraise for the purchase price, your real estate agent can help appraisers by meeting them at the appraisal inspection and providing good documentation of recent sales of comparable properties. The appraiser can choose to use the information or not, but it generally is worthwhile for a real estate agent to provide recent sales information from the MLS for good comps.
TIMING FOR LOAN APPROVAL AND CLOSING – Lenders usually give priority to purchases over refinances because the escrow periods for purchases (especially in our market) often are short. Lenders also provide timetables for each step in their process. As a mortgage broker, I can work with a lender to get “rushes” on certain steps, but when lenders and appraisers are busy (such as whenever there is a drop in rates), schedules can be rushed only so much.
How can you help the process move quickly?
You can help hasten the process by providing requested documentation as soon as possible, ideally in electronic format, and by being available for communication during the day.
To the extent possible, don’t change your financial picture during escrow. Check with your mortgage broker or lender before doing any of the following: transferring large amounts of money between accounts; making other large credit purchases (such as a new car); accepting large amounts of money other than income payments. Any of these actions can precipitate requests for additional documentation from a lender and slow down the loan process.
If you are buying a house and have a short escrow, don’t go on an exotic vacation in the middle
As a mortgage broker, one of the best things I can do to deal with uncertainty and control during a loan process is to communicate well so that everyone avoids surprises. By keeping you and your real estate agent apprised of where we are in the process, milestones, possible hiccoughs, and potential courses of action, I can help relieve the anxiety and stress that can arise as you make the biggest purchases of your life.
Questions? Feel free to get in touch with me at 415‐730‐4665 or email@example.com