Today, when a Realtor asks a mortgage broker this: "How long should the loan contingency be?", a mortgage broker just might say: "We can remove the contingency the day the loan closes."
Why? Because until the lender FUNDS the loan, there is danger of it falling apart.
In advance, I apologize to all of the listing agents out there who are rightfully uncomfortable with this concept. I realize it is a benefit to your seller to know that the buyer can get a loan before they agree to take the house off the market.
But it is what it is. Lenders are jittery. They are overly conservative. They are running scared.
A little thing called GUIDELINES in the mortgage world has far more significance right now than any FICO score or interest rate. Think of guidelines as a line drawn in the sand that if stepped over, will kill the deal.
Guidelines are the rules that lenders make that determine IF a loan will fit inside their approval box. These rules are applicable to BOTH the borrower AND the property.
The only problem is, even if you stay behind the line, up comes the water, washes the line away, and when the new one is drawn, well....you guessed it.
YOU ARE WAY OVER THE LINE according to a NEW set of guidelines.
The truth is, lenders hold all the cards. If they decide they DO NOT want to loan the money, no approval is iron clad. And even the most pristine of borrowers can suddenly have their approval washed away from an appraisal review.
For the last 6 months, I often find myself at the closing table thinking, "I could not replicate this loan again". Guidelines change so quickly that what WAS acceptable 30 days ago, is now "outside of guidelines".
Racing against ever changing guidelines and lender closures has become routine. Has this had an impact on the way we do business? ABSOLUTELY. The whole concept of a pre-approval, especially prior to determining the property to be purchased, is about as iron clad as a wet cocktail napkin.
Here in California, lenders continue to crave equity justified by declining values of properties (if a lender does a 90% loan and the house drops 10% in value, they now hold a 100% loan). To compensate, they "ding" the loan for an additional 5-10% downpayment. When starter houses cost $600k, you can clearly see how a buyer might NOT be able to have another $30,000 in downpayment.
They might as well have a stamp on every application that says SHOW ME THE MONEY.
Which is why I believe that RATES can literally PLUNGE, but what does a 5% rate matter if the borrower is unable to fit inside the lender guidelines and qualify for the loan?
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