5 nasty surprises that can stop your home purchase cold
4. Tougher financial requirements
Financing is a deal-stopper for many buyers. Lenders are edgy these days. They're rejecting a quarter of all mortgage applications.
A few years ago, the average credit score for a mortgage loan was 720. Now it's 760.
"Lenders appear to be willing to lend only to the cream of the crop of potential borrowers," says Molony of the NAR.
When Century 21 surveyed its agents recently, three-quarters said they'd lost at least one sale in the last six months because the buyer couldn't get financing.
To be fair, here's what the lenders are up against: With home prices still sliding in most markets, no lending agent wants to give you $350,000 today for a home destined to drop $50,000 in value within a year.
Your application gets even more complicated if you're self-employed. Without an employer — and pay stubs — a lender will want your last two years' tax returns. Fine, you'd think. But there's a hitch: Smart entrepreneurs and freelancers claim all tax deductions legally possible. You may have grossed $100,000 last year, for example, but you reported just $50,000 in taxable income. And that's not enough to support a request for the loan you want.
That's what's happening to a client of Robertson, the Silicon Valley, Calif., agent. His client, a self-employed dentist, wants to buy an office property in pricey Palo Alto.
"Her gross income is pretty substantial." But the net income she reports to the IRS is much less, Robertson says. "And with the tight (lender) income guidelines, she has not got enough to come close to qualify. A couple of opportunities have come up, and she hasn't been able to make them go because she hasn't got the loan."
Pre-emptive action: Get your ducks in a row before home shopping. Start a year ahead if possible. Clean up your credit score and squirrel away a big down payment. Apply for financing and get preauthorized before hitting the open houses.
5. Preapproved? We changed our minds.
Experts advise you to apply — and comparison shop — for a mortgage loan before shopping for a home. This is called getting "preapproved." Unlike a "prequalification," a quick check of your credit score and employment, preapproval is supposed to bind the lender to give you a loan at specific terms in a specific time period.
But lenders may preapprove you and later back out. More than a quarter of loans that are preapproved are ultimately rejected, Molony says.
Robertson tells of a seller whose townhouse recently attracted a buyer. The buyer made an offer and showed his preapproval letter from his bank, and everyone thought the deal was set to close.
The lender, however, pulled back after seeing the property. It was in a planned unit development with common spaces, homes, businesses and a homeowners association. The bank didn't like the ownership structure.
It can be harder to get financing on condos and townhomes. With shared property and homeowners associations, there's a greater chance of lawsuits or liens. "Some lenders just don't want to take the risk," Robertson says.
Luckily, he could point the buyers to a lender that had financed previous sales in the development. Still, the hitch delayed the sale, costing the seller about $500 to extend a rate lock on a mortgage so he could move up to another home.
Here's the reality about preapprovals: The term doesn't mean much. There's no standard industry definition, so the strength of your preapproval depends on the competence and experience of your loan officer. Also, you and the property must pass muster. So, even if you've submitted your loan application form for preapproval, until you've identified a specific home your application won't get the really serious scrutiny required for final approval. Even if the bank thinks you're good for the loan, the property you like might have boundary issues, legal problems, a property dispute with neighbors or any of a host of other problems.
Pre-emptive action: Ask your lender how firm your preapproval is and what else could be required. Your lender should say you've been preapproved under certain conditions and should name them. If you're buying a condo with a Federal Housing Administration mortgage — by far the most common mortgage these days because of low down-payment requirements and government insurance — shop for homes using this FHA list of approved condo developments.
ALWAYS check the flood maps!!!! found out the house we were selling was in a flood zone ( after living there for 10 years) and had to have flood insurance (
never had it while living there) !!!
found out that the maps were wrong and fought for 10 months and some many $$$$ later to get it changed. lost the deal that was on the table because of this. and then lost more $$$$ because of the time delay.
while your at it be sure and ask glenn and all the other industry troll shills out there to show you borrowers the rate sheet and the back end yield spread premium/service release premium you made jacking up your clients rate from what they actually qualified for
all the industry shills and professional message board trolls/AM radio content parrots seem to vanish when confronted with the TRUTH
and the rest of you idiots who have faith in these clowns DESERVE to get ripped off
If anyone would like the actual facts and guidelines that support 100% of what my previous post said, please feel free to contact me through my company and I would be happy to teach you the way things really are. I can document absolutely everything!
...for all your preaching, you are totally clueless... the whole melt down was caused by government mandated risky loans...
Did the government actually "mandate" risky loans?? And the government was responsible for the "whole" meltdown? Where is the evidence?
- CRA regulations only affected national banks, many of the worst loans were from mortgage firms not under CRA regulation.
- When most state attorneys got together in 2003 to crack down on predatory lending (risky loans) the national banks went to the Bush administration and an obscure federal agency (OCC) invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. So in this case it seems as though the banks used the government to continue the pushing of risky loans rather than the government mandating the banks make these loans.
- These loans were sold as Mortgage Backed Securities (MBS) and even though many were entirely made up of subprime loans they were given AAA ratings by Moody's and S&P thus investors thought they were secure investments. This AAA rating also was a reason that demand for these products (and subprime) was so high.
- All groups had financial incentives to push these risky loans they generated more fees than regular loans.
- Also, if you remember, construction and housing were the main drivers of the economy this past decade. Builders, mortgage companies, banks and many others had great interest in keeping this boom going. Prices were appreciating 10% and more per year and the only way that consumers could afford a house was with these new risky loans. Greenspan gave his OK for these loans in a 2004 speech.
- Self regulation was the mantra of the Bush administration, Greenspan and the Republican controlled congress so again, was government actually forcing banks to make these loans or was government turning a blind eye to these loans since finance companies were making money hand over fist with the creation, packaging and selling of these products.
yes, be sure and contact glenn, especially if your a loser deadbeat with no financial responsiblity....like glenn, he is the poster child for the scumbags in the mortgage industry
hey...my name is glenn...even if you had a foreclosure 2 months ago from the house you couldn't afford, i can get you another loan for another house!!!!
dude, do us all a favor and go get lost out in that wildfire..........and all you people flocking to him for the truth, ask glenn to show you the rate sheet the day your loan is locked...so you can see how much he screwed you over giving you a rate higher than you qualify for because he has to make his money not just from the excessive up front fees but on the yield spred premium/service release premium he gets paid on for giving you a rate higher than you qualify for...
what say you mortgae shills/internet trolls?????
Yep, after Barney Frank, Chris Dodd & the rest of the miserable lying democrats
destroyed the housing industry this what we got. A hapless F%$#! up housing market
with the banks getting the 'bail out'. How many broker crooks got rich off this scam
and now they're STILL benefiting from the current low interest rates. Non dock loans,
forcing banks to lend to losers, easy money, all the work of the demoRATS and NOW
they have the AUDACITY to claim it was lack of regulation!
The Republicans? they were too gutless to stand up to this scam, afraid of the filthy
lies that would come from the media no doubt!
For those of you not in the industry, you should be aware that a few years ago congress passed a law, with good intentions, that attempted to create a partition between appraisers and lenders in order to preserve appraiser independence. The unintended consequence is that this law resulted in a significant rise in demand for a middleman partition and appraisal management companies (AMC's) filled that void. It is estimated that today AMC's service 80% of all mortgage transactions. Not all AMC's are created equal. However, like most businesses, they are in it to make a profit. A common AMC practice is to email broadcast an assignment to a pool of appraisers in an area and then assign the appraisal request to the appraiser who is the cheapest and fastest instead of the appraiser who has the most training and experience. This is not the way to hire a professional. As you can imagine, this has had a significant downward pressure on the fee received by the appraiser while the AMC is actually charging the consumer more than the former standard rate for their "management" of the process. Many of the more experienced appraisers will not work for the AMC's at these discounted rates and instead are marketing their services to the few lenders who do not utilize AMC's and other users of appraisal services. So, the realtors and buyers are is left to deal with lower tier appraisers. Congress is aware of this issue and recently passed a law that stated the AMC's must pay appraisers a customary and reasonable fee excluding from the discussion the fees that appraisers have been getting from AMC's. However, the AMC's have become very powerful during the past few years and were able to delay implementation until their lawyers were able to expose a loop hole in the law. The government department that is to enforce this law is still in the development stages. So, the AMC's are doing what they please. Ultimately, the consumer and the american tax payer will pick up the tab for the greedy AMC's and their poor appraisals. Just last month the FDIC filed a complaint against LSI, Corelogic, eAppraiselIT, and other outfits for negligence resulting in the bank failures.
This is a really strange article. Nearly all the caveats are things that are good for the buyers, yet they're presented as though they are bad.
1. A low appraisal? Sounds to me like you've just been saved from paying too much.
2. Lender demands repairs? Well, they were in the contract. Sounds like a good idea to me.
3. Home doesn't have a clean title? You really don't want one of those. Where I've lived, it's always customary for the seller to provide title insurance for the buyer. Duh!
4. Really people, if your credit rating isn't at least 760, you probably shouldn't be buying a home, and I can't imagine why anyone would want to lend you money for anything that wasn't fully secured.
Re self-employment income. If you gross 100k and have 50k expenses, then your income is 50k. Why is that an issue?
5. Pre-approved? Yeah, for a loan on a good place. If the bank is afraid, perhaps you should be, too.
Most bad things that happen to this country is attributed to laws passed by Congress. Such is the case on all the foreclosures. Congress forced the banks to loan money to the poor people who couldn't meet the payments and then turned around and filed bankruptcy, thus forcing the foreclosure situations. States have passed laws that protect the buyers of these homes, who file bankruptcy and then get to keep the home. Many of these buyers in my opinion constitute fraud and thievery in this situation.
As a Real Estate Broker I am confronted with these issues daily. The congress did their knee jerk reaction to the financial crisis by making a stupid law. I have known some outstanding appraisers over the years and they have always shown an even hand when performing the difficult task of appraising a property. Now, when you have a willing buyer and seller they (the parties to the contract) no longer dictate value, some outside appraiser does.
My real issue is the use of derelict properties (foreclosed & short sale) as viable comparables. Most are in serious need of repair which costs thousands. These outside appraisers pull up a comp out of the system telling them square footage, how many bedrooms and bathrooms and use the sales price as comparables. If we don't stop this practice home values have no chance of rebounding till ALL foreclosures and short sales are gone.
Banks don't want to lend unless the price at foreclosure exceeds their loan exposure. They will do everything they can to turn down any buyer that is suspect.
I agree with the article above...find a qualified agent and stick with them.
I will leave you with one other thought. As a buyer of property, you get the services of your agent for free since commissions are paid by the seller. You can chose to have the very best in representation without spending more. I know it sometimes feels like you should use your friend, neighbor, family member or someone else who just got their license or dabbles in the business. There is a difference, check credentials and education. This may be the biggest transaction in your life, do you really want to trust it to someone who doesn't do this for a living?