A few weeks ago I wrote about the pros and cons of paying cash or financing real estate. While more than half of those who purchased property in Park City paid cash during the first quarter of 2013, almost half successfully obtained financing. Most of the transactions I have been involved with this year involved financing and below are some secrets I have learned from my battles with the mortgage process.
- Pick a local lender. One of my buyers was leaving the country and had to close on a specific date. Wells Fargo Private Mortgage stepped up to the plate by kicking my client’s file to the front of the line and producing documents on time. In contrast, another client used a mortgage broker with Chase in her hometown. Her loan documents were delayed by two weeks. Luckily this was a second home. Can you imagine if she was planning on moving into the home and had to wait two weeks? Enough said. Local lenders who consistently receive referrals from me will jump through hoops to help my clients close on time. Other lenders may talk about service but they have no control over the loan process.
- Pick a local lender. This is not a typo, but important to repeat for a completely different reason. In Park City, where we have resort properties, the local lenders know which projects are FHA approved, which are considered “condo-hotels” versus “investment properties”, and which are considered “PUDs”. If you don’t have a clue about these terms then all the more reason to choose a lender who does. You don’t want to get to the financing and appraisal deadline only to learn that the loan officer who told you he could lend on the property was wrong, the underwriter has rejected the file, and you just wasted a bunch of time and money (on an inspection and appraisal) only to find you can not buy the property you wanted.
- Start the loan process immediately. Don’t wait until after the inspection to order the appraisal. If you are worried a home will fail inspection then why are you buying it? Once the appraisal is ordered by the lender, it goes to a third party who then picks the appraiser. This process can easily take a week. The appraisers, who are slammed with business right now, can easily take another 5 days to return the appraisal to the third party. The third party reviews it. If they don’t like the appraisal, it goes back to the appraiser to “fix”. Then back to the third party, then back to the underwriter. The underwriter can also send the appraisal back to the appraiser for adjustments. Can you see how the appraisal process can easily take three weeks? This is one part of the loan that your real estate agent and lender have no control over. Start early so you are not put in a position of having to extend deadlines or cancel your contract.
- Have your financial documents ready to send. Accept that you will need to provide every shred of documentation about your life when you apply for the loan and perhaps again just before approval. Accepting the redundant documentation necessary for lender approval will make everyone’s life easier. It’s no longer necessary to have excellent credit, a big down payment and stable employment with income sufficient to support your debt service to guarantee your loan approval. However, you must have a borrower profile that meets the credit underwriting guidelines for the loan you are requesting. And, more importantly, you have to be able to document your profile. Every nook and cranny of your financial life has to be corroborated, double and triple-checked, and reviewed again before closing. One of my clients received a raise and the paycheck stub provided just before closing did not match the one provided when he applied for the loan. This caused a 4-day delay.
- Work with full-time professionals. As mentioned in points 1-4, the loan process is difficult enough when everything goes right. If you are working with a part-time mortgage broker or part-time realtor, you are asking for trouble. I meet the appraiser for each of my transactions, whether I am representing the buyer or seller. I want to make sure that the appraiser is using the best comparable properties. I ask when he will be turning the appraisal back to the third party. The appraisers tend to treat my clients and me better when they know they are being watched. I am currently involved in a transaction where the appraisal was ordered two weeks late. Even though I represent the seller, I begged the appraiser to move this file ahead of others because we were in a time crunch. He said he would do it. If you need to move into the property you are purchasing and if the timing of the transaction is critical, then hiring full time professionals who know what they are doing and who have the experience and connections to resolve problems is critical to a successful closing.
While purchasing real estate involves many moving parts, the lending and appraisal process causes the most frustration because so much of it is out of the buyer’s and realtor’s control. Following these 5 secrets will prevent heartburn, wasted time and wasted money. Do you have lending nightmare stories or lenders you recommend? Please share them in comments.