In today’s real estate market, the volume of real estate loan applications has increased and lenders are busy processing them. However, it has become harder to get them approved and is taking much longer to close transactions. The following suggestions may help to maximize the probability of success.
Start early
The sooner the loan process is begun, the sooner and more assured a successful and timely result will be. A 4-5 day delay at the start can compound into several more days of delays at the end of escrow. Actions that may help include assuring that down payment funds are in an account before starting the approval process. Funds need to be “seasoned”, that is, actually be present in the account for a sufficient amount of time to satisfy most lenders. Pre-approval of financing is essential at the time an offer is being put together. This typically will involve a lender running credit reports, verifying sufficient funds available for down payment, and possibly a review of the last two years of tax returns.
Work with a loan broker
This will give you access to far more sources of funds rather than just working with a direct lender. Be sure the loan broker is experienced and fully familiar with the current purchase forms. Preferably, they will also have a personal rapport with the lender’s underwriter that they may be using for you.
Begin preparing documents
Gather all paperwork that details everything regarding income verification, investments, partnerships, and alimony before a divorce is finalized. Do NOT borrow or use credit cards for significant purchases such as jewelry or cars during this period, as lenders will notice this when they re-run credit reports.
Be prepared for last-minute requests
It is not uncommon for a second appraisal to be ordered, possible interest rate changes or increases in the down payment to be required. For example, if a FICO score shifts by only a few points within a month after lenders reviewed a credit report, it may result in a substantial increase in the amount of cash they will require for the down payment!
Select a pro-active real estate agent
Be sure they will continually follow up on all details and have a good line of communication your loan broker.
Check with your insurance company
Be sure coverage is available through them and find out in advance what the cost will be. For example, a few companies will not cover properties located north of Sunset Boulevard (closer to potential brushfires).
Be sure your contract provides enough time for loan contingency
Whereas 17 days used to be sufficient and customary to obtain a loan, nearly all lenders today will agree that 30 days should be agreed upon by both parties.
Consider alternative sources of financing
Credit unions may be an excellent source of financing. Also, if the traditional approaches to financing have been exhausted, private lending may be an option that can get the real estate loan accomplished. Many borrowers are not aware of this option.
Everyone needs to take a step back in this challenging market environment. Sellers should be accommodating with extra time when requested. All parties will do well to anticipate that there may be significant delays as is common at the end of the escrow.
For the past 24 years Michael Edlen has provided real estate counseling services to prospective buyers and sellers. More tips and information are available on MichaelEdlen.com. He can be reached at 310.230.7373 or Michael@MichaelEdlen.com.
