There are weeks where stuff comes up as a part of the loan origination process that makes me think, “I have to tell the [real estate broker] community about that!” These can be just random speed bumps that arise and can be easily avoided or serious pot holes that could detour your transactions.
Last week was one of those weeks!
Appraisals, home improvements and permits:
If recent work has been done on a home, appraisers are expected to prove that the work has been properly permitted. For example, if the appraiser notes that a bath has been added and does not determine if proper permits were issued, the underwriter will request documentation to determine that the bathroom was installed legally (with proper permits).
Be sure to ask your selling clients if they got permits prior to any recent work (say within the past five years to be safe). If they didn’t get permits you may want to try to get an inspector from the city or town prior to listing the property.
Just last week we had a situation where a bathroom was added in the basement of a home that now has to be removed prior to closing because the owners did not have the proper permits. Needless to say this situation caused stress and frustration for both the buyer and the seller which could have been avoided.
Commitment dates and extended closings:
Mortgage commitment letters have expiration dates. This can create some concerns when a closing is months later than the mortgage commitment date. Legally the following documents expire after 90 days and must be updated:
- Income–pay stubs
- Assets–Checking, Savings, Investment, Retirement
- Credit–must be re-pulled after 90 days but should not be re-pulled early
- Appraisal–good for 120 days before it has to be re-done.
The timing on obtaining these documents can create some issues. For example, investment or retirement accounts may only send out statements quarterly, or borrowers who are paid monthly may have to wait 30 days for their next paystub to provide the documentation required to update the commitment letter and extend the expiration date.
All loan approvals are at risk if the borrower ruins their credit, loses or quits their job or if they spend all their down payment money, whether the commitment is issued three weeks prior to the closing or three months! It is important to work closely with your lender and your buyer so that you fully understand what needs to be done to update the mortgage commitment.
Conversely, we have buyers with extended closing dates who are required to make application right away. This is fine as long as there is no requirement to order the appraisal since the buyer would be required to pay for a second appraisal if the first one has expired.
As always, if you have questions, thoughts or concerns about the timing of a transaction, give us a call and we will walk through the scenario with you to come up with a solution that will work for everyone.
It is imperative that you get your buyers to obtain a pre-approval before you start showing them real estate. This Monday I had four sets of buyers insisting on getting pre-approved the same day in order to make an offer on a property seen over the weekend. Speed can lead to mistakes in the pre-approval process. We may simply not have enough time to put together the right package for a complicated borrower but able buyer, or we may not be able to educate them so that they are comfortable with the process especially when faced with a competitive situation.
It is better for your buyers, sellers and for you to insist that your buyers are thoroughly and thoughtfully pre-approved in advance (which should include a review of paystubs, W-2, bank statements, credit report, tax returns) so that they are fully prepared and ready to step up and make a rock solid offer with excitement and enthusiasm and with no regrets.