All too often, the water cooler talk circulates and the stories about mortgage companies dropping the ball become ingrained with would be borrowers and the real estate community alike. How to stop changes before they happen…
Rates & Loan Fees Change
Fees changing and rising, sting the most. Nothing is more frustrating for a consumer than to have their interest rate and loan fees change during the loan process. Unfortunately, this can happen and taking precautions on the front end to reduce the likelihood of this occurring should be paramount on the mind of every mortgage loan officer in the country. It’s just good business to watch out for your customer. Do what you can for the consumer to mitigate any possible challenges that might pop up later on down the road, by fully reviewing all the details. Granted this is a lot easier said than done, as there many intricate facets of putting together a solid mortgage loan, but here are frequent situations:
- Appraisal does not come in at the right loan-to-value- this is a big driver of cost. The higher the loan-to-value, the pricier the loan can be tied to a specific interest rate chosen. For example let’s say you’re 30 year fixed-rate mortgage is locked in at 3.99% on the assumption you have 30% equity or more in your home. Home appraisal comes in revealing you have 20% equity in your home and now you’re 3.99% interest rate costs one discount point plus closing fees (1% of the loan amount). Depending on the size of your loan, this could easily be several thousand dollars more for the same interest rate based upon a disparity in perceived home valuation versus actual valuation. In this capacity, it probably would’ve been more prudent to take a worst-case interest rate upfront say at 80% loan to value type financing to prevent a negative change.
- Credit score is not as high as you think- If you get a mortgage rate quote based on a certain credit score range and your credit score is not 740 maybe it is 715 for example, that can make the loan pricier. A good best practice is to allow a mortgage company to provide you a real rate and cost quote based on an actual score.
- Income lower than what initial application represents- when you apply for a mortgage loan you tell the mortgage loan officer what your income is and they support this income with you providing supporting documentation in the form of tax returns, W-2s, pay stubs, etc. Before ordering an appraisal, a reputable lender should look analyze your income in its entirety, and position your loan for an approval when the appraisal valuation becomes known. This reduces the likelihood of your loan possibly becoming problematic down the road, due to debt load.
- Undisclosed debt-just because it’s not on your credit report does not mean it’s not a liability that must be accounted for-make sure your mortgage company knows about child support, alimony, & tax debt to name a few.
Cash To Close Change
When this happens, a mortgage company is forced to suspend your loan. A suspended mortgage loan is not denied, but is also not an approved either, it is need for more assets to close the loan or more supporting documentation. A common example is trying to qualify for a conventional mortgage loan, a debt to income problem arises that pushes the debt to income ratio higher forcing the mortgage company to have to switch mortgage loan programs i.e. going from a conventional loan to an FHA Loan that has more expanded qualifying parameters, but at the cost of the more expensive mortgage to the consumer.
Other commons loan changes include, but are not limited to the following:
- Loan size changes- for example Jumbo loans $1 above the max conforming county loan limit tout very attractive rates and fees. Typically, borrowers looking for big mortgage loan sizes are stronger on paper, have more equity and or more cash to close coupled with strong credit scores. If a consumer happens to be deficient in one of these areas for whatever reason, the jumbo investors buying these mortgage-backed securities do not take too kindly to anything that does not fit their box, as a result, a down grade to conforming loan would in order. This may mean financing less increasing cash to close to keep the transaction alive.
- County Loan Limit- make sure when buying or refinancing a home that the program you’re looking for meets the county loan limits in the area in which the property is located or give the county to the loan officer at application. For example in Sonoma County, California, the maximum conforming loan limit is $520,950 and any amount one dollar above this amount becomes Jumbo.
- Underwriting does not allow for a certain loan purpose or loan structure- this one does happen frequently, case in point the borrower has multiple financed properties for example and the investor the loan officer locks the interest rate with allows for four financed properties. In such an instance, an additional low-level pricing adjustment would make the loan more costly as well as having to change loan programs during the loan process causing the need for more supporting documentation.
The best possible way for a borrower to prevent surprises in the mortgage loan process is to make sure every detail is accounted for. Disclose every material fact in its entirety. Think who, how, what, when, where and why when sharing your details with a financial services provider. Even the simplest smallest detail could cause issues down the road if not discussed, supported and documented. Let the loan officer whom you’re working with take an acutely accurate loan application, and provide them with all supporting documentation and explanations they request. Utilizing the time and due diligence planning a mortgage loan needs on the front end cannot only make the process light-years easier, but can also save time and money through closing.
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