In the last few years many things have changed in the housing and real estate business. The sub-prime mortgage crisis of the last few years has forever changed the landscape of homeownership in America. Many people are unsure what all the changes mean and how these changes will affect consumers. Also, when it comes to pre-approval and final approval of a mortgage, the days of instant approval and quick turnaround are over. What can you do to prepare for this process?
First, the key to understanding all this is HERA, the Housing and Economic Recovery Act of 2008. This act was passed on July 24, 2008 and signed by President Bush on July 30. The act was primarily designed to address the sub-prime mortgage crisis and the lending practices that precipitated it. The bottom line of HERA, was to change regulations and help endangered homeowners. If a lender was willing to lower the principal balance of a mortgage to 90% of the home's current appraisal, the FHA would back up to $300 billion in new 30 year fixed rate mortgages. It was only applicable to a primary residence. Also included in the act were tax credits that worked like interest free loans. Homeowners would pay back the credit over the next fifteen years. These, of course, are just the highlights. You can find more answers at the US Department of Housing and Urban Development. The Act was expanded with two important updates this year that regard appraisals and customer notifications of changes of lender terms.
HERA was also intended to prevent the sloppy and incomplete lending practices that, in part. led to the crisis. As a result, the way lenders process pre-approvals and final approvals have changed. Additional time mandated for customers to absorb and ponder mortgage notifications lengthen closing times. What used to take hours can now take days; what used to take days can now take weeks.
Let's start with pre-approval. It used to be that lenders would pre-qualify you for a loan; now sellers want pre-approval. Don't even bother with pre-qualification, which is an estimate of how much you will qualify for based on what you have told the lender.
For pre-approval, the lender will ask for documents such as: Photo ID, most recent W-2's, current pay stub (possibly for the last 6 months), and some may ask for information on any other outstanding loans. This information will be submitted to automated pre-approval process for the lender. Once you find your home, your information, along with any changes, will be submitted for a final approval with an actual underwriter. This process can take up to several days depending on how many other loans the underwriter is reviewing. Before the housing crisis, final approval was processed through an underwriting program and an actual underwriter may not have even reviewed your application.
As of May 1, 2009 appraisers were further shielded from outside influences, while it was mandated that borrowers received copies of their appraisal report at least three days before closing on their property. Effective July 30, additional HERA measures dictate that the closing cannot take place less than seven business days after the home buyers receives mortgage disclosures. Prior to receiving the disclosure, the buyer does not have to pay certain fees upfront. If the APR on the loan changes more than .125%, the buyers must get a revised Truth in Lending disclosure, which will add at least another three days to the time when closing occurs.
On a final note, for a foreign national to consider purchasing a property, pre-approval MUST be completed before even beginning the process of looking for a home. Some realtors have gone as far as requiring a pre-approval letter before showing any homes. There are several requirements added to the list for a pre-approval in this case. The first obstacle is Visa status. If you are a foreign national you must hold a long term visa or your country of origin must be on the Visa Waiver program. Secondly, you must be able to transfer bank funds into the United States. You need to check with your bank to make sure there are no limits on what you can transfer to the US. Finally, the most important point is that you must have a valid passport.
While all these changes may seem intimidating, working with a real estate professional will make the whole process smoother. Now more than ever, a great agent is worth their weight in gold!! Contact Karen Breen Elia or Louis Elia at ChicagoCityHomes for help you get prepared to buy a home and find one for you on Chicago's North Side. If you are having problems paying your mortgage, they are also Certified Distressed Property Experts (CDPE) and can help you examine your options.
P.S. - HERA authorized the first $7,500 tax credit, which has since been replaced with President Obama's $8,000 credit. Time is winding down on this credit which expires December 1, 2009. It can take over 45 days for the house to close, so hook up with Karen or Lou to get the ball rolling!
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