In today’s difficult lending environment it is advisable to do your due diligence before locking a mortgage rate and a loan offer. At HomeStart Capital, these are the four most common unknown facts that we see frequently and could delay, in some cases even deny, your loan. This information can save you and everyone involved on this transaction a great deal of headaches and last minute issues. All of this could be easily avoidable if you are a well informed borrower.
1) The Rate Lock applies to the Property, NOT to the borrower.
Before asking your Professional Loan Officer to lock a rate offer, make sure that you are absolutely certain that this is the property that you would like to buy. If for any reason you change your mind on that property and you choose to buy another one, the lock will have to expire and you will have to start a new process from the beginning with that new house. We can use most of the same borrower documentation, but it will have to be a brand new approval and rate lock.
2) Make sure to do a full inspection on the property before locking that loan.
Once you lock a loan, the clock starts ticking. In today's extremely difficult lending environment where thousands of people are buying and refinancing simultaneously, most lenders are overwhelmed due to stringent guidelines and high volume, there is no time to waste in order to close on time. Most properties will have some issues that need to be renegotiated after the home inspection (even brand new homes). Negotiations after the inspection can take time; make sure that you are fully satisfied with the property that you are purchasing after the original inspection. On a side note, home inspections and appraisal are two different things. Appraisals are required by all lenders and they are mainly designed to determine the value of the property. Home Inspections are NOT required by mortgage lenders; however, it is highly advisable to do an inspection for your own peace of mind and to ensure that the property is in good condition. I recommend hiring a home inspector with an engineering background; they are worth the extra fee.
3) Provide all of your income and assets documentation to your Loan Officer in advance.
A high credit score and money in the bank are not enough to qualify for a mortgage anymore. A face to face meeting with your Professional Loan Officer and providing all your documentation up front is the best way to ensure a smooth process and fast approval. A good Mortgage Professional should revise in advance your complete loan application, full credit report, last two years of tax returns (every page), latest two months of bank statement (every page) and any large deposits or transfers should be well documented. These are just the basics, every single person has a unique situation and it should be addressed from the start to have an action plan. If you are self employed, your documentation should be even more detailed. For more information about self-employed borrowers, visit our five part “Tax filing blunders when getting a mortgage” on our HomeStart Capital blog.
4) If you are buying a townhome, due your upfront diligence to confirm it is not a condo.
Townhomes are very popular these days. Townhomes and condos can very similar and it is, in many instances, difficult to tell them apart. Here is the big issue with this scenario: As far as the lending industry is concerned, townhomes are treated the same as a primary residence. A simple questionnaire filled out by the Home Owners Association and their master policy insurance may be sufficient to get the property approved. Condominiums are a completely different story, for starters, mortgage rates for condos are higher with all banks, lending guidelines are more stringent, most lenders have their own internal list of “approved condo projects” and those lists are not very big. If the condo project is not on that “approved list”, it is very time consuming to get them approved through the internal condo approval department of each bank, an average of a three week process. If you have a 30 day lock, you will easily run out of time. The only way to ensure the type of property is to speak up front with the HOA and title company to make sure they both agree on that description, ask your Professional Realtor to get that description in writing.