Looking Out From the Garage: October 2009

It's easy to complain about how long it takes a loan to close - even loan officers do it. The truth is if everything is in order and the property is acceptable the loan should close within 21 to 30 days of the receipt of all documents by the lender. This is not 21 days from application date nor is it 21 days from contract date. It is exactly as stated: 21 to 30 days from the date a full application is received.

The tug-of-war between agents and loan officers can be turned around if both remember to stand on the same side of the mud puddle. Generally the agent needs to realize they do not know as much about the actual workings of the mortgage industry as the loan officer and the loan officer needs to realize the same and not leave the agent in the dark and don't use insider terms to explain everything. I understand Active Rain participating agents are more well informed than others because we all swim in this same pool!

Almost every loan application has some similar needs. If the agent knows what these are and can help prep the client to get these together quickly and accurately then the agent and the loan officer can start out by standing on the same side of the mud puddle and pulling the same direction on the rope. These are not absolutes and are not carved in stone but at least 9 of 10 loan applications need most of the following:

For W2 Employees

1. Two years of tax returns, all schedules, signed by the taxpayers. This will be verified by the IRS so go ahead and feel free to ask the home buyer if these are the same tax forms they sent to the IRS for those tax years.
2. Two months of bank statements all pages including blank ones - front and back (checking and savings if they are used on the application as assets). Look at the documents and find every page. If the first page says 1 of 15 we'll be looking for 15 pages.
   
3. One month's coverage of pay stubs showing deductions and year-to-date income. If they get paid weekly this would be four pay stubs. If they are paid bi-monthly this would be two pay stubs and so on. If they get paid by a handwritten check (like some small businesses do) we're going to have some challenges verifying income according to document requirements so brace for impact.
   
4. A clear photo-copy of a government issued ID (driver's license, passport) showing the current address. If the current home address is different than the address on the ID we may need a letter of explanation.
5. A clear copy of the social security cards. Photo copies are okay and scans are best.
6. A fully executed sales agreement signed by all parties and legible. If it has been faxed back and forth we cannot read the words or even the signatures. If your great-grandad cannot easily read the contract in low light it's not good enough. Send us the unexecuted (unsigned) contract along with the best possible signed copies.
7. If it is a condominium we need the condo questionnaire completed (you can get that from me or whoever your lender is - each lender has a different one) and insurance information.
8. We need the insurance information for the buyer's preferred home owner's agent.
9. If there is a gift of funds from an acceptable member (pretty much limited to a direct family member like a parent, child, sibling or spouse) we need a gift letter which you can get from the loan officer.
10. If the home buyers have not been in the same line of work for 2 years that could be an issue so be prepared to face that challenge.
11. If the home buyers have a gap of more than a couple of weeks between jobs a good letter of explanation will be needed.
12. If the home buyer is receiving Social Security Income or Disability we will need the award letter and it will need to be continuing for three years after the closing date.
13. If the home buyer does not have a checking account they need to go get one. It's very difficult to get a file closed for someone without a checking account.
14. If the home buyer has student loans which are deferred we need the letter of deferment and it needs to be good for at least the next 12 months.
15. If the home buyer is receiving maintenance from another person we need the court order and if it is for child support we need the birth certificate of the children. (We are not permitted by law to ask if the applicant wants to use child support as maintenance.)
16. If the buyer has another home and it is for sale we may need a copy of the listing agreement.
17. If the buyer recently sold a previous home and are using the proceeds for the down payment we need to see a copy of the HUD1 from that closing.
18. If the property is new construction we will likely need a termite free letter.
19. If the property is in a flood zone there is a brand new set of requirements.
20. If the property was purchased by the seller within the last 6 months and has increased in value more than 5% have the seller be prepared to show documented upgrades, repairs and other investments into the life and value of the property.

Seriously, this is a partial list. There may be this many things again especially if the buyer is self employed or a legal resident alien. If you are aware of these and the buyer and seller are aware of these and we work together to get them then at least the first 10% of the work required to get the loan into underwriting for approval has been addressed. There are at least this many items which are addressed by the lender which also have to be completed before the application can even be submitted to underwriting.

It may be that the lender will not need all of these documents but they will need most of them. How many times have you spoken with a loan officer and they said, "I'm still waiting on the ...." If that is one of the things on this list you should already have prepped the home buyer(s) to know they will need to supply these. The longer they take to get it in the longer the loan will take to get closed.

Ken Cook - Nationwide Specialist - Information/Marketing - FHA Home Loans
678-439-8683

This one kind of goes along with "When Can We Close?" from a couple of years ago and another "How Long Does It Take To Close Today?" from a few weeks ago. It is further inspired by feedback from many agents and clients over the last many years.

First it is important to understand the difference between a pre-approval, an approval and a clear-to-close. That explanation is given here at "Pre-Approval, Approval, Conditional, Cleared - What the ____?!" Let me augment that by saying you, the home buyer, have a lot of power over how certain your pre-approval is.

Pre-approvals are generally good for 30 days. This almost always depends on lender guidelines. To make sure you are getting a real pre-approval listen to how long it takes to get your pre-approval and to what you supply to the loan officer before you receive your pre-qualification letter.

Recently I received a call from one of the largest banks in the world and the phone call started by telling me I had been pre-approved for a very low interest rate to refinance my current home. When I asked the phone bank operator to send me the pre-qualification he said he would have to ask just a few questions first. There was probably only a pre-qualification based on my credit score and estimated property value. Worth nothing.

A real pre-qualification can take as little as a couple of hours and a seasoned loan professional can easily guide you through the process. Anyone who gives you a pre-qualification over the phone without having seen any evidence to prove what you have said is giving you a decision based on credit and payment history with your statements only. This type of pre-qualification is what gives loan officers a bad name.

If you are thinking about going shopping for a new home you should get pre-qualified before you even begin. Unless you have significant income, strong credit and payment history and plenty of cash you need to know what the lender is going to offer based on your specific qualifications. The loan officer will also be able to tell you which property types and costs are okay for which loan products.

To sum it up - get qualified first then start shopping. Otherwise you may be wasting your time and the time of others as well.

 

Ken Cook - Nationwide Specialist - Information/Marketing - FHA Home Loans
678-439-8683

Ancient Mortgage Proverb: No deal is ever 100% certain until the loan is completely paid off.

There exists a chasm in communication, familiarity and point of view between agents and loan officers. Sometimes we try to act like it does not exist and we really wish it was not so. I know this chasm exists, just as you do for many reasons, because I have had real estate agents - very good agents - try to convert to loan officer at my companies and I have seen this chasm immediately appear. Sales are fairly and generally black and white, go or no-go, yea or nay. Either the seller accepts the offer, counters or declines. Every agent I have seen try to become a loan officer has had a difficult time adjusting to the different levels of approval.

There are different levels of approval with virtually every mortgage application to loan process and agents we really need you to do your best accept them even if you don't understand them. Otherwise you're going to continue driving the loan officer (me :) nuts and forcing the weaker ones to lie to you or avoid you. Let me help you not contribute to their delinquency by briefly explaining some of the levels of loan approval and addressing how I handle them individually.

First please recognize the average loan has many human and non-human touch-points. It's not just the loan officer or just the loan officer and the underwriter. There are also as many as dozens of other humans plus automated systems involved. If the loan application is not approved by each and every one of these processes as required by the lending or insurance (mortgage insurance) guidelines the application will be denied and the deal will be done.

I don't care who the loan officer is, where they work or what they say - these are constants and work the same way at every lender/bank/broker unless the person you are talking to has the money in their personal checking account and are personally making the loan - something a loan officer does not have the authority to do for any lender.)

Application Approval - these are generally worthless. These are generally called a pre-approval and sent on a letterhead from the bank, lender or broker. These are often given only after accepting the application and examining the credit history of the applicant(s). At this point nothing has usually been verified or even documented such as income, assets and job history. (I do give these and I explain this is a CREDIT ONLY pre-approval and I have verified nothing except credit and payment history.)

Credit Only Approval - see above.

Automated System Approval (Application Stage) - this is also generally worthless. The loan officer generally has not verified income, assets and job history at this point. This is where most "approval letters" are issued on that official looking FNMA Pre-Approval sheet. (I give these as well and explain I still need all the documentation and several verifications of documenation from the appropriate source.)

Underwriter's Opinion Pre-Approval - again basically worthless for the same reasons. (I give these ocassionally when there is a borderline issue as in tax returns for example.)

Underwriter's Conditional Approval - this is where the loan officer should have a very good idea if this application will be approved. There can be as many as 3 or more weeks between the Application Approval and this date because this is the first time anyone has looked at the complete application package which will include: income documentation (pay stubs, tax returns, etc.), asset documentation (bank statements, retirement account statements, letters of verification), employment verification, rent/mortgage verification, appraisal, insurance documentation, inspection (if required), fully executed and legible purchase agreement, and whatever else is needed. THIS IS STILL NOT AN APPROVAL! There will be conditions and until the conditions are satfisfied this is not a loan.

Clear to Close (or Cleared to Close) - this is it. This is the first time ANYONE can assure this will be a finalized transaction and it does have an expiration - usually 7 to 10 days after the approval.

-Side note about conditions. I had a first time home buyer ask me about "Conditions" the other day. He's a young and single man so I used an illustration I thought he could easily understand. I said, "Suppose you finally get up the courage and ask that pretty girl out on a date. She tells you she will go out with you if you drive a red sports car, pick her up at exactly 7PM and take her to the most expensive restaurant in town." I needed to offer no further explanation of conditions.

The bottom line is this: If you do your job right, the loan officer does their job right, the title/escrow agency does their job right, the appraiser does their job right, the inspector does their job right, the insurance company does their job right, the buyer's employer does their job right, the buyer's current mortgage company or landlord does their job right, the person giving the gift (if there is a down payment gift) does their job right, the IRS does their job right, the borrower's accountant/CPA does their job right, the seller does their job right, the appraiser does their job right, the HOA does their job right, the inspector does their job right, the processor does their job right, the underwriter does their job right, the closing co-ordinator does their job right, the funder does their job right, the seller's agent does their job right ... that's most of them ... then within a few days to a few weeks we'll meet at the closing table. Until then NOTHING is certain.

Now do you still want my opinion or do you want to wait for the truth?

Ken Cook - Nationwide Specialist - Information/Marketing - FHA Home Loans
678-439-8683