Full “DU” Loan Approvals …Never Lose a Buyer Again
So Does this Sound all too Familiar?
Your buyer’s offer has been accepted, their loan has been approved, and the updated loan package has been submitted to the investor.
Then comes the final “loan approval” BUT “with NEW conditions”. Panic sets in!! “(Re)-Disclosures” need to be signed (again?).
Rate locks are expiring! Contingency periods have expired. Movers have been scheduled.
Most last-minute conditions are “fixable” but the delays in COE (and our commission checks) ARE VERY REAL. Your future referrals will be affected. And so will mine.
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Here’s what causes “transactional panic” and how to avoid it.
1) Buyer’s Lack of Disclosure
“We can fix what we don’t know”! Buyers need to disclose to their lender anything and everything that even remotely affects the financing of the home, including lawsuits, old student loans, etc.
Just because a credit issue is not (initially) listed on a buyer’s credit report, it does not mean it won’t become an issue at the end of the loan approval process.
Past government debt (i.e. tax liens, unpaid student loans, pending litigation, or criminal fines) often go undisclosed and usually shows up at the very last POSSIBLE moment via Cavirs.
CAIVRS stands for credit alert interactive voice response system and is a database created by the federal government to track people who have skipped out on federal debts or obligations.
Unfortunately a “CAVIRS check” is the VERY LAST STEP of the “Quality Control” process (after loan docs are drawn, signed and returned to the doc dept.). Seldom do transactions close when CAVIRs issues arise.
2) Lack of Buyers’ Preparation/ Cooperation/ Focus
It’s easy to begin a loan application; it takes about 10 minutes to fill out an application. But it’s providing the required documentation that buyers often come up short.
As a real estate agent, remaining in close contact with a loan officer is critical to closing on time. If buyers aren’t providing information in a timely manner, the loan officer needs to communicate directly with you!
Agents can encourage buyer’s prompt cooperation by reminding buyers of contingency deadlines and their earnest money is at risk if they don’t meet those deadlines.
3) Excessive Credit Inquiries
Often, when buyers are told they are preapproved, they apply for more consumer credit (in anticipation of redecorating their new home) or make large purchases.
Each new “retail” credit inquiry lowers a buyer’s Fico score by 7-10 points. In addition to drastically lowering scores, any new debt raises debt ratios, reducing a buyer’s home purchasing power.
4) Transferring funds around without a “clear paper trail”
Post 9-11 the government has used currency laws to pry into our bank accounts. Now all deposits need to be traced, there is no ability to just deposit (actual) cash into an account & then use it as a down payment. All monies will need to be “seasoned” for 60 days and paper tailed.
5) Gift Funds
If your borrower is receiving gift funds, OPTIMALLY it is best to have the $$ in their account approx. 60- 90 days before loan submission.
Doing so eliminates the need for a gift letter (and the giver’s subsequent documentation). It will then appear as if the gift receiver has a history of “savings,” therefore adding “strength” to the file.
Related Posts: Using Gift Money to Buy a Home
The most common problem with gift money is that givers (usually “parents”) must provide proof/source of funds (bank statements) to paper trail the funds. Often, the giver resents or refuses to provide banking information, and that’s a complete deal killer!
6) Liquidation of 401k or IRA accounts
Borrowers need to begin the liquidation process approximately 3-4 weeks before the money needs to be transferred to escrow.
7) Illegible or Unsigned Documents
According to NAR, “the new normal” for closing escrow is 46 days. From the pre-approval process to the offer process and straight through to COE, items such as bank statements and pay stubs need to be constantly updated.
Whether it’s an illegible purchase contract or “smudged account numbers” on bank statements (yes…I’ve seen it all), borrowers (and sometimes agents) submit unreadable documents. These documents all delay escrow’s closing dates.
7) “Servicers” are backed up.
No one wants your buyer’s loan to close more than the loan officer; virtually all of us are on commission, just like you.
But here’s the reality: Our industry is “boom or bust” causing most support companies (title -escrow- appraisal firms) to avoid hiring and training new employees. To be quite blunt about it, many companies prefer to poach their competitors staffs than to train their own.
Because there are no training programs for new hires, transaction processing is delayed at every level when interest rates drop and “refi mania” bursts out.
8) “Refi Mania”.
When the interest rate is cut and a large number of refinance loans are originated, purchase transactions are often pushed to the back burner.
Purchase transactions are more tedious and require much more attention to detail than refinance transactions so loan managers often push their loan officers to focus on easiest quick closings .
9) Appraisal value comes in low
With multiple offers on each property it’s tempting for sellers to choose the highest offer (vs. the most realistic COE). If the offer is all (or mostly) cash; it’s a good choice.
If the buyer has minimum down and a lack of capacity to make up the difference between sales price and appraised value, it’s probably a bad choice as the escrow may cancel.
The only other alternatives are to lower the price or order a second appraisal.
If the loan is FHA or VA, the appraised value is “set in stone” for at least 90 days, most often 6 months. (no second appraisal is allowed).
Agents can meet with appraisers during inspection but rarely do so. If value is a concern, try to meet the appraiser at the property with your set of comps. It can make a difference.
10) Verification of (previous and current) employment
Over 50% of your buyers will have had a job change in the last two years or be needing to use bonus, overtime, or commission income to qualify for a loan.
It’s rather routine for small to midsize companies with their own HR departments. But for buyers working for large corporations, that data must be verified through an automated system (e.g., TheWorkNumber.com).
It requires the borrowers to go online, get a “one-time pin number” that is only good for 24 hours, and forward it to their lender, who must then access the site within the 24-hour window period.
If the buyer has had multiple job changes that will exacerbate the situation. Then we have to dance around the room, doing the hokey pokey, on one foot all the while whistling “Dixie” and lighting our hair on fire. (OK.. it just seems like it)
11) Vacation Times
Just like everyone else, there are certain vacation times of the year when our culture shuts down for holidays, and these dates need to be factored in when an offer is made and the loan process continues.
Specifically, the week of Thanksgiving, the 12 days of Christmas (through the New Year), and the 4th of July, employees use the long weekends to combine with sick /personal days, etc., to stretch out their vacation and avoid other travel bottlenecks.
Under the new guidelines, a spouse or domestic partner who is under the age of 62 can now be a “co applicant.” However, the disbursement proceeds of the loan are/ will be reduced based on the age of the youngest applicant.
Daniel Dobbs (.org)
Managing Broker
Mutual Home Mortgage
500 S. Kraemer # 165
Brea, Ca. 92821
Cell: 949 250-3981
Dandobbs6@gmail.com
DRE # 00986886 …..NMLS# 307631
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