Getting a loan for a property has become increasingly difficult in today’s crazy financial real estate market. On one end, banks are losing millions of dollars through shorts sales and foreclosures and on the other hand, they are afraid to make the same mistake with new borrowers. Therefore, getting a loan is complex and often frustrating.
First, find a lender that you trust and then stick with them. If you are in escrow, you can’t change lenders without jeopardizing the transaction. Buyer contingencies are supposed to be removed in 17 days which means that you should have your full loan approval by then. If you switch lenders, you won’t be able to make that deadline, and the seller can cancel the contract on you. I know, I just had this happen to one of my buyers and they were heartbroken.
Second, ask all your financial questions up front. You should ask about interest rate, origination points, underwriting fees, processing fees, admin fees, credit report fees, flood report fees, appraisal fees, and any other fees you see on your Good Faith Estimate (GFE). Your GFE is what you should use to compare lenders. The new 2010 GFE is supposed to increase transparency, but in reality, it has made the process a whole lot more confusing. That is because loan brokers and mortgage bankers now have different ways to complete their GFEs.
Third, ask to be fully approved before you begin shopping for a home. I have lost two transactions since December 2009 because lenders were not able to deliver on their promises to get my buyers a loan. Both buyers had pre-approval letters from banks and both opened escrow because they had been told that they would be able to get a loan. In the end, both were forced to cancel because they could not get a loan after they turned in all their documentation. To get a full approval you will need to supply all the required documents which typically include 2 years of tax returns, W-2s (or 1099s for the Self Employed), current paystubs, bank statements, 401(k) and IRA statements, credit reports, cancelled rent checks, and if applicable, green card, government paperwork for Veterans, marriage dissolutions paperwork, name change documents, employment contracts, lien releases, rental contracts, and more as needed. The bank will call your employer to verify employment, request the IRS to validate your tax returns and your income, look into your credit history and ask for detailed explanations of any discrepancies, review all deposits into your bank accounts that are not from your paychecks, and ask for an explanation for each, etc… By the time the bank approves your loan, they will know more about your financial status than you do.
Fourth, keep your Realtor in the conversation with the lender you have selected. Your Realtor has a duty to protect your interests, and he or she can only do that if you keep them informed about your decisions and progress with the loan. The Realtor is there to help guide and direct you so that you make the right choices at each step of the home buying process.
I’m completely serious about these four things. As I have seen first-hand, buyers will be heartbroken when they finally get an accepted offer, only to find out two, three, or four weeks into it that they cannot even buy a house. All those dreams of owning a home just get dashed to pieces and it’s so very sad. Throw in lost deposits, broken rental contracts for first-time buyers, hours and days wasted looking for homes and you get the picture. It’s just not good.
So, now that you are fully aware of how bad it can be, take this word of advice: Do your “home” work before you start looking for a home. If you need help finding a reputable lender, call me. I know good ones.