45 Day Escrow...All the Time in the World, Right? WRONG!

45 Day Escrow...All the Time in the World, Right?  WRONG!

The real estate market in the Hemet - San Jacinto Valley, CA is dominated with investors and first-time homebuyers.  The investors have all been through escrows and know what is expected of them to close and close on time, without incurring hefty per diem charges for delays.  First-time homebuyers more often resemble a deer in headlights, believing that 45 days is plenty of time for everyone to do their job.

The first time homebuyer who now has successfully negotiated a purchase contract, with the help of their REALTOR® or other real estate agent now has the real work cut out.

I'll often joke with buyers, very early in the process, when I'm assisting them with the ‘pre-approval' process that once they have been pre-approved we'll know exactly how much money they have to spend, and being the bona-fide shopaholics that I am, I can easily help them spend their money.  I'll go on to explain that getting into escrow is the easy and fun part - where I earn my money is getting out of escrow.

TIME FOR THE BUYER TO GO TO WORK

Perhaps the most critical actions any buyer can do is be prepared with supporting documentation that will include a copy of their drivers license and social security card (for each borrower, if more than one).

The first time borrower must be able to provide proof of income that will include pay stubs for the last month.  The borrower must also realize that it is not uncommon for the underwriter to request updated information and documentation in the days preceding the anticipated close of escrow date.

Not only will the borrower have to produce current employment records but tax returns for the most recent two years, as well...to include ALL W2's and 1099's for the prior tax years.

Two months worth of ALL bank statements will also be needed.  Make sure you include your IRA and 401 statements as well as any CD's and saving accounts.  This is not the time to black out account numbers or bank branch info - this is documentation that will be verified.

STAY CALM

Assuming the first time homebuyer is successful at submitting all of the requested documentation right away, it does not mean that the borrower is off the hook.  The loan package, with all of your supporting documentation as well as the appraisal and possibly even termite or maintenance inspection reports are closely reviewed.  The analogy of the underwriter analyzing your hemorrhoids with a microscope are often floated in conversation.

It is NOT uncommon for the underwriter to request additional documentation.  This is the point when many purchasers will start to loose their composure.  The process is getting down to crunch time and the buyer is being asked for something that has already been produced, or the buyer can't understand why they would ever want to see something that appears to be totally irrelevant...say 10 year old divorce papers, or a child support award...anything.  It's all possible.

It is imperative that the new home buyer maintain their cool and accept the fact that they have been reduced to the role of a circus tiger trained to jump through burning hoops of fire.  Just do it.  Don't argue.  Don't justify.  Don't make excuses.  Remember the old Nike commercials - "Just Do It".

WHAT NOT TO DO

Now this should be understood without any comment here - but maybe the seasoned real estate agent or loan officer just got so tired of sharing this information that they just naturally assume everyone and their brother knows this...DON'T MAKE ANY MAJOR PURCHASES UNTIL YOU CLOSE ESCROW - PERIOD!

I hate thinking of the Hemet - San Jacinto, CA real estate transactions that went sideways and didn't close because some happy-go-lucky buyer felt sooooo good that they were buying their first home they went out and bought a house full of new furniture, using some easy payment plan...many times with no payments due for a year.  Maybe they bought a new car or they start opening new lines of credit - you know 2 or 3 new credit cards. .  My favorite is when a first time wanna-be homebuyer quits their job and starts their own business.  That's always a classic - remember more than likely the underwriter will want to see updated pay stubs at the end of escrow - at the very least they will be making telephone calls to the employer.

The reason why is very simple.  The loan the first time buyer is obtaining was calculated on a debt to income ratio, among other important factors.  When debt is increased it throws off the entire ratio.  Even if the borrower would qualify for a similar loan with the higher ratio - more often than not they don't qualify for the loan that is being processed.  And no, they do not just re-adjust the terms.  This deal is now scrapped and more often than not the first time buyer has just forfeited their earnest money deposit.

This has all been said before.  In today's economic climate these guidelines are perhaps even more important than ever before since the lenders appear to be over analyzing just about everything.  So please prepare yourself ahead of time, be prepared for bumps in the road and don't don anything of a financial nature until after you close your escrow.