The home mortgage industry has realized significant changes in the past few years resulting in closing delays and an increased number of homes going "back on the market" due to the buyer not getting loan commitment. When buyers and sellers have a better understanding of the mortgage loan underwriting process many of the delayed closings or lost deals can be more easily avoided.
Robert Fishel, a mortgage broker with Paramount Mortgage summarizes the changes in a recent article:
- Documentation –Needless to say, the “No-Doc/Low-Doc loan is a thing of the past. Typically, your lender will ask for paycheck stubs, W-2’s and bank statements. Additional documents may be needed to prove residency, income, financial soundness or even identity. A couple of examples of additional documentation could include sourcing “large” deposits and identifying any and all credit inquires for the last 120 days.
- Updated Documentation –If it takes longer than 30 days to close your loan, your lender will likely ask you to provide updated bank statements and paycheck stubs so that all documentation is up to date and current. Just before closing, the lender will update and review your credit to make sure no new accounts were opened or significant changes were made since application; the lender will also contact your employer to make sure your employment situation and compensation have not changed since the verification was complete.
- Tax Returns Don’t Lie –In the past lenders typically did not request a copy of your tax return unless you were self employed or had “other” income outside of employment that was necessary to count to qualify for the loan. Lenders now are required to obtain a copy of your tax returns for the past two years (in some cases 3 years) directly from the IRS.
- Slow Down –Don’t wait until the last minute to apply for financing. It is now mandatory that seven days must lapse between the time of your loan application and the closing of the loan. This is not necessarily problem for most transactions. Most loans take considerably longer to close, but it could be an issue if you are in a time crunch and waited too long to start the process. In addition, if there are changes to the terms of your home purchase and/or loan, the closing could be delayed by three days; the lender is required to update their disclosures and give the borrower period of time to review these changes prior to closing.
It is not uncommon for a glitch in one of these processes to cause a delay or lose the sale. Yogi Berra's famous quote "It ain't over til it's over" is a fair warning to sellers and buyers after reaching price agreement. However, a better understanding at the beginning of the process by both buyer and seller can possibly thwart some of the disasters and inconveniences that are besetting both buyers and sellers in our current economy.