It happens. And if you don't have a very firm grasp of the onion like layers of the loan process it is very difficult to understand why. Therefore to begin let's look at the steps in the process of a loan:
1. Loan Officer accepts an application from the borrower. In the case of a local broker the LO is the person who will be your liaison for the duration of your file. For the national behemoths the LO is more like an operator who just accepts your order.
2. Your credit history is examined and a preliminary credit decision is issued. While this is not your approval it is erroneously referred to as an approval even by people in the industry to get you on the hook. When you hear anyone say you can get an approval in as little as 15 minutes you should hear the sound of the hook sinking into your mouth. What you actually get at this time is a "pre-qualification". It's not worthless but it's not worth a loan ... yet.
3. Your file, now known as a "1003 and credit" is exported into an underwriting engine either through a third party provider or inhouse. Most underwriting engines are provided by a mortgage insurance company, GSE or government program. A "conditional approval" is then received or some other level of approval or denial is issued. This approval is better than a pre-qualification but in the vast majority of cases this is still not good enough to let you stop working (as a borrower).
4. You are given a list of "stips" which are stipulations required to fulfill the approval. If you and your property can meet the stipulations of the approval then all is good! In about 40% of the files on people with good credit, income and assets, and a property acceptable you'll get to closing with no bumps. If, however, even one stip cannot be "cleared" the file may be "dead". Dead means the approval turns into a denial.
From step one to step four as many as 23 people touch the loan. No your loan officer does not work alone nor do they disappear when you hang up the phone only to reconstitute on demand when you need to speak with them. Just as real estate agents don't actually live at the Open House and you don't beam into existence just to do your job. The long road leads to the point that there are many "moving parts" to a loan most agents aren't even aware of. That is not a slam on them just like it is not a slam on most loan officers to say they have no idea how much work the average real estate transaction requires on the sales side.
A great rule of thumb is to wait for the words "Clear To Close". If you hear those words before you, as a borrower, have sent copies of your paystubs or tax returns, copies of your bank statements or an appraisal has been done then dismiss them as rumor and tell your loan officer/processor/CSR you don't believe it is possible to have a clear to close at this point. Exceptions include refinancing at the same lender where your existing loan is or refinancing from an FHA loan to an FHA loan.
Of course there are always exceptions and a good mortgage broker will often do a lot of things you never know about in the course of getting your loan to close. They may take care of some of the stips on their end without your input or knowledge. Yes I *always* recommend dealing with a broker or a lender who also brokers. Why? A denial from a lender like Countrywide or Wells Fargo is a denial for you. A broker or brokering lender, like my Novation Mortgage (licensed to do home loans in Georgia and Florida and commercial nationwide hint hint) can simply move your "file" to the next investor and get it closed without you ever knowing provided the interest rate does not change. A high volume broker can save you money, time and much stress.
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
Copyright©2008 Ken Cook. Georgia and Florida real estate investment loans, FHASecure and FHA Home Loans, nationwide commercial hard money and small business loans, non-recourse loans for real estate investors
Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender