We are very fortunate to work with a number of experienced and efficient Realtors who know how to make the home buying process as stress free as possible for their buyers. Not only do they know how to navigate the steps of finding the right home, negotiating the contract, and arranging the necessary inspections, etc., but they also know how to prepare buyers/properties for the mortgage process and ensure that all critical information relating to the property is promptly relayed to the lender. We don’t expect our Realtors to be experts on the mortgage process. We are more than happy to educate and guide both Realtors and borrowers, but there are some simple things that they can do to prevent last minute surprises or delays.
#1 Prepare the Contract Properly Regarding Financing Alternatives
Prepare the contract properly with regard to financing alternatives and provide the related contract addendums. Most standard contracts will indicate whether the financing is going to be conventional, FHA, VA, etc. Make sure that you know the type of financing the buyer is applying for and indicate it on the contract. This is typically indicated on the mortgage pre-qualification. If the financing is FHA or VA there is a financing addendum that must be completed. This addendum MUST be dated on or before the contract date by all parties. Not providing this addendum or having it dated after the contract date can cause delays.
#2 Convey Important Factors About the Property to the Lender
Be aware of important factors relating to the property and promptly convey them to the lender such as:
Property Flips – If the property was recently acquired by the seller, there may be additional documentation needed, or possibly even a second appraisal. If a second appraisal is required, the buyer is not permitted to pay for it. Negotiations should be made to determine who will incur the additional expense and the seller should be made aware of the need to provide documentation to justify a significant increase in the sales price since the last purchase. Always let your lender know upfront when you have a property that was purchased within the last 6 months.
Discussing this upfront with the buyer and the seller will help to avoid delays and set proper expectations for both parties.
Property Type – Some properties such as modular homes, condos, new construction, etc. may have financing requirements that are different than a single family home. Although the lender should inquire as to the type of property during the pre-qualification process, I have seen situations where buyers were pre-qualified by a lender for a single family residence and ended up placing an offer on a condo not realizing the terms/rate for the actual property were significantly different than what they were quoted or approved to purchase. In some cases financing may not even be available. For instance, a condominium must be FHA approved in order to use FHA financing. In some areas there are a limited number of FHA approved condos. Unless the borrower can qualify under a different program, they may be prevented from buying that particular property.
Repairs – This is one of the more common pitfalls. We receive a lot of calls about whether or not a property will qualify for financing due to the needed repairs. Sometimes this is a tough call and requirements vary by lender and by programs. While the differences between FHA and conventional guidelines are not as significant as they once were, there are still some repair items that may not need to be done for a conventional loan, but would not pass the “health and safety” standards of the FHA loan. Many repair issues will prevent buying under either program – such as a bad roof, or no working heat in the home. It is also possible that homeowners insurance will not be available. This is one area where an experienced Realtor can really help. Whenever possible, repair items should be dealt with before the lender orders the appraisal. Otherwise, the appraiser will issue an appraisal that is “subject to” the items that are requiring repair. The repairs must then be made and additional cost and time incurred for the appraiser to go back out to do a final inspection and ensure that they were done properly. In addition to making sure that repairs are taken care of, the Realtor should make sure that electricity is on and there is running water. Pools should also be functioning with clean water. With the numerous properties on the market that have been vacant and neglected with regard to maintenance, these issues are quite common. And once again, communication is the key. Make sure that the lender is aware of potential problems with the property, so they can plan accordingly.
#3 Notify the Lender if any of the Parties will not be Physically Present at Closing
If any of the parties to the transaction will not be physically present at the closing and a mail away or power of attorney will be required, notify the lender as soon as this is known. Mail aways require that the loan package be available earlier to ensure that there is time to get the documents back from the party that is not present. A power of attorney may require pre-approval by the lender. In addition, some sellers, particularly bank owned property sellers, require more lead time for receipt of the loan package and approval than others. These timing requirements should also be communicated at the beginning of the process.
#4 Make Sure Your Buyer is Committed to Complete the Purchase
Make sure your buyer is committed to and understands the time and effort that will be required on their part to complete the purchase. While we routinely counsel our buyers on what will be expected of them during the loan process, we are often surprised at the number of buyers who plan vacations or have previously scheduled out of town work commitments during the 30 days following application. When a buyer is focused and responsive to our requests, the loan goes smoothly and typically closes in less than 30 days. On the other hand we have had situations where buyers are not accessible or take days and even weeks to respond to requests for documents. Most contracts have specified dates for completion of each phase of the process, from inspections to appraisals to loan commitment to closing. We make it our priority to meet or exceed each of those deadlines, but our job cannot be completed without the cooperation of all parties involved. Even if the parties to the transaction are amenable to extending deadlines, once the buyer has locked into an interest rate, it may be costly to extend that deadline. We understand that the Realtor also cannot control these situations, but we find that those who do help to reinforce the importance of committing to the process enjoy a more stress free transaction.