Mortgage approval is no easy task

Posted by Leslie Bauer on Wednesday, January 28th, 2009 at 11:20pm.

It wasn't too long ago that home buyers made offers without financing contingencies and closed the deal in as short as 14 days following acceptance. Quick closes are virtually impossible today if you're buying a home with the aid of a mortgage. And, it's highly recommended to include loan and appraisal contingencies in your offer.

Following the credit crisis of August 2007, many mortgage lenders closed down. Those that are left have cut their staff due to low demand for mortgages. Also, it's now necessary to actually qualify financially for a home mortgage. This adds time to the loan approval and funding process.

For most mortgages, home buyers are now required to have good credit. They need to provide verification of employment (W-2s or tax returns), verification of the funds needed to close (down payment and closing costs) and verification of reserve funds.

If the funds haven't been sitting in your bank account for a few months, some lenders require proof of where the money came from. Be prepared to provide brokerage statements, and any other supporting documentation that will validate you as a bona fide borrower. Buyers who own other real estate will need to provide even more documentation.

HOUSE HUNTING TIP: It's a good idea to start pulling together all of your financial documents as soon as you're serious about buying a home. Ideally, the paperwork required by the lender should be forwarded to your loan agent or mortgage broker within a couple of days of contract acceptance. You can't wait until the last minute to provide the lenders what they need and expect to close on time.

Before you write an offer, check with your mortgage person to find out how long it will take to process and fund the mortgage. Some lenders are taking 35 to 40 days from acceptance. So, you wouldn't want to commit to a 30-day closing, if this is the case.
Make sure that you allow sufficient time in your contract for the appraisal and formal lender underwriting approval. This could take two to three weeks, depending on the lender and on how diligent you are about supplying the documentation.

Your lender or mortgage broker will order the appraisal of the home you're buying. It should be ordered as soon as possible. If you end up not buying the house, you might owe an appraisal fee. However, waiting to order the appraisal could cost you time.

Many lenders require a review appraisal, which is a second appraisal to confirm that the first one is accurate in terms of market value. Ideally, this should be done before you remove your appraisal contingency. If it can't be done within that time frame, ask the seller for an extension.

Before August 2007, it was common practice for lenders to prepare the mortgage documents for the buyers to sign even though all underwriting conditions had not been met. For instance, the lender might have needed proof that you paid a charge-card account down to a zero balance.

Today, many lenders won't issue the mortgage documents until all of the pre-funding conditions have been met. So, you need to be prepared to provide additional documentation that the lender might request, even if it's at the last minute.

Work with a good loan agent or mortgage broker who will help keep you on track throughout the process. And, as outrageous as the lender's requests might seem, don't let it get to you.

Lenders have a lot of due diligence work to do to restore their credibility with investors. The housing market is dependent on investors buying mortgages so that buyers can buy homes.

THE CLOSING: Properly qualifying buyers for mortgages is long overdue.
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