One of the biggest changes in the history of mortgage originations occurred this past January with the introduction of the new QM (Qualified Mortgage) rules issued by the Consumer Financial Protection Bureau. It has caused lenders to become much more intrusive into the personal financial affairs of buyers when they are applying for a home mortgage.
The order of the day today is “excessive documentation”. And they require documentation for EVERYTHING!
This new protocol has created frustration for everyone involved in a real estate transaction. Lenders are trying to feel their way through what they need to insure they can sell a mortgage in the secondary mortgage market. Buyers are trying to jump through all of the hoops necessary to provide the seemingly endless amount of paperwork needed. Sellers must exercise patience as these new requirements have caused many delays in transaction closings.
One way for buyers and sellers to help minimize this frustration is by using (buyers) and requiring (sellers) a pre-approval letter that has been “fully underwritten”. This is still very rare in real estate, but a step that will save you time, effort, patience and keep a transaction on schedule.
What am I referring to? When a buyer seeks a mortgage to purchase a home, the lender will ask a series of questions regarding the buyer’s financial standing. Things like, where do you work, how long, how much do you make and how are you paid, what debts do you have, how much cash do you have on hand, what other assets do you have, and so on. With the answers to these questions the lender can determine the amount of mortgage the buyer is qualified to handle. Based on the conversation the lender issues a “pre-approval” letter. It basically states that the buyer is “pre-approved” for a loan assuming that the information he or she has given is accurate and it needs to be verified and documented. And the house itself must be appraised for value to insure it is worth what the buyer is paying and it must have clear title.
It is this verification process that takes the most time. Once all documentation is received it goes to the lender’s underwriter for review and final approval. Once that is given the loan is marked as “clear to close”, and the transaction can now move to the closing. In rare cases even after the “clear to close” has been issued a lender may retract it and ask for more information.
Lately the bottleneck in the home buying/selling process has been in the underwriting of loans. Traditional documentation is no longer adequate. Lenders are asking for more information than ever before and that takes time.
So, to help keep a transaction on track, it would be best if buyers today obtained a pre-approval letter that is “fully underwritten”, rather than just using the traditional pre-approval letter. The difference is that the buyers have done all of the paperwork “shuffling” up front, and the lender’s underwriter has “approved” the buyers for a loan. The approval then only becomes subject to the appraisal and title work for the home. Getting the home “approved” in the process is much quicker than getting the buyer approved. Following this procedure will insure the transaction will close on time.
article contributed by:
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Mike Vanderheyden has been a client of the The Marketing Advantage Farm Net for several years printing & mailing his custom newsletter titled ‘Mike’s Real Estate Update’ to his clientele in MN which often includes a lead article written by Mike. Mike’s slogan describes his focus on service to his clients: “Dedicated To Preserving Your Real Estate Equity.”
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