Once you’ve been prequalified or pre-approved for a home loan and done a home search and found a home, and signed a contract for sale, the hard part for you is done, at least for now! !
Now the lender has to get to work and research to get the loan package approved and financed and ready for a closing date. This article will look at the underwriting process as well as appraisals, home inspections, special underwriting problems you may encounter, and what to do if you are denied a loan.
You can help speed up the process to a fast closing by quickly responding to any questions from the lender or requests for your documents. Notify your human resources department to receive an Employment Verification form or call the lender. Stay in touch with your mortgage broker, lender, and real estate agent, but don’t drive them crazy! These are professionals and they have a keen interest in seeing your loan close, because unless you do, they don’t earn a commission! So rest assured, they are aware of your loan!
The appraisal involves your lender verifying the value of the property you want to buy. Appraisals are an estimate of the value made by a Certified Real Estate Appraiser (CREA) who is licensed by the state to do this. The appraiser will examine your property inside and out. You will examine the sales records of comparable nearby properties for the past 6 months (“comps”). Photographs will be taken and finally a full report will be prepared and sent to the lender. For residential property, the typical cost for this service is between $ 250 and $ 400. In some cases, the lender may also want a surveyor to examine and certify the property boundaries.
Problems sometimes arise: what if the property is valued for less than the price you have agreed to pay? Then the seller will have to lower your price, or you will have to pay more cash in the down payment, because the lender is not going to loan more than a certain percentage of the value.
Title / summary search and title insurance have been covered by me in previous articles, so here I will only reiterate briefly that the purpose of researching a property title is to ensure that the lender will not loan you money against a property that may already have prior liens such as unpaid taxes, bonds, zoning issues, lawsuits, etc. The title company will research the property title and certify it without any hassle and then issue a title insurance policy. Just remember that title insurance doesn’t cover future events, like life or car insurance. It covers past Events!
Flood certification is always necessary to assure the lender that your area is not in a flood prone area. Floods are generally not covered by your homeowners hazard insurance policy, so if you are in an area that is likely to flood, experience hurricanes, etc., you will be prompted to purchase flood insurance.
While an appraisal will certainly be required, you may want to protect yourself by having an independent home inspection performed. Especially if you have no experience in the construction sector! Some lenders and states require this to be done. The inspector will examine the foundation and roof of the home and systems such as plumbing, electrical, heating, and air conditioning. If there are serious defects, inform the seller that they need repair before the sale, or negotiate the sale price as compensation. Get repair estimates in writing to strengthen your position when discussing this with the seller. A professional home inspector will likely charge $ 200 to $ 400 or more for very large or complex homes.
After the appraisal has been completed, you and the lender will have a final idea of the property’s value and can now begin looking for homeowner / hazard insurance. At closing, you will be asked to prove that this coverage has been purchased. Do not leave this item up to the lender because policy costs can vary widely. Shop around and be sure to ask about discounts for alarm systems, deadbolts, hurricane shutters, impact glass windows, etc. I have a separate article on buying homeowners insurance, so I won’t cover it extensively in this document, except to say that you can generally choose a “Replacement Value” policy for older homes filled with furniture, appliances, electronics. , etc., or choose a “Cash Value Policy that takes into account the depreciation of content over time. An old computer would be considered to have no remaining value and would not be replaced, for example. Sources of value in cash are cheaper.
Unforeseen Problems – As the lender’s underwriters process your loan, problems can arise. Condos, for example, can be a problem. When buying a condo, you are only buying the interior space. The exterior of the building belongs to the association as a whole. With a townhouse you can also have garage space and a small front and / or back yard that is your private property. The value of this space that you will own can be affected by what is happening in the condo as a whole. The lender will usually ask you to take a questionnaire to the condo association to fill out. They will not want, for example, to see that more than half of the units are rented instead of being their own. Tenants tend not to care about their units and therefore reduce the value of the properties for everyone else. Lenders will also want to be assured that the association’s management is competent, has an adequate maintenance budget, has adequate insurance, etc. What is a storm blowing from the roof or a fire 2 units down engulfing your unit?
I live in South Florida. This is a great retirement community. Many condos and many of their management teams have retired and elderly volunteers. Some are great. And some can make your life hell, they are nosy nosy and obnoxious! Check out the general population of the condo you are considering buying and see if you are a “good fit” for the residents there.
Now let’s look at the worst case scenario: you are denied the loan. Happens. Maybe your credit wasn’t perfect, maybe your lender doesn’t like the property, or would like to see a down payment that is higher than you can afford. The most common reasons are credit problems, a lack of a down payment, or too much current debt. In either case, the lender must provide you with the reasons in writing within 30 days. If you think discrimination occurred, call the toll-free numbers the lender must provide. Otherwise, keep looking elsewhere for a loan. If you are working with a mortgage broker, your application will likely be handed over to a new lender before you learn of the denial, because it is in your interest to get it approved.
You may really need to wait a bit and pay off some debt and save more money. The lender may have done you a huge favor by not letting it cross your mind.
As always, work with a mortgage professional, they can answer your many questions and guide you to the right lender for the right loan for you.