While many experienced real estate agents have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or worse yet denied.
New TRID regulations, updated disclosures, HVCC appraisals, mortgage rate pricing based on your credit score, secondary investor approval, rescission deadlines, HOA insurance requirements, title insurance and property flip rules are just a few of the daily changes that can have a serious impact on a borrower’s home loan financing and final interest rate.
With today’s volatile lending environment, it’s obviously important for home buyers to get a full loan approval which clearly defines all contingencies that pertain to each unique home buyer’s scenario prior to spending any time looking at new homes with an agent.
Either way, we’ve listed a few of the top things your agent should keep in mind while showing you new properties:
Caution – Agents Beware:
Property 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 more than 35 miles away then yes) What if I’m buying a home for my children to live in, it is still considered an investment property? ( not if there is no rental income)
These are just a few of several possible residence related questions that should be addressed by your Realtor and loan officer at the initial loan application.
Mortgage Rates are typically locked for a 30 day period. Interest rates also have certain adjustments for property type / residence type, credit score and down payment. These can all have a big impact on monthly payments and therefore loan approvals.
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, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.
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, an investor will do a little rehab work, fresh paint, landscaping…. and try to re-sell the property for a significant profit.
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 boundaries.
FNMA/FHLMC/HUD/VA all require Condominiums to have sufficient insurance and reserves coverage. They also have requirments pertaining to specific ratios on units that are owner occupied vs rented and condominium litigation.
It may also take a few weeks and cost up to $400 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 slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.
VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you’re approved for so that they document any anticipated 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