Getting you loan approved is not just about what is on your application. Your credit score, income and assets are important but they are just a few pieces to the puzzle. In today’s mortgage environment issues can pop up at many different times during the approval process. Some of these issues may be out of your control but in most cases you should be able to deal with anything that comes your way. Here are some of the most common unexpected loan items and how you should deal with them.
Last minute credit pulls. It is important to know that even though you are approved your lender may look at your credit one more time right before closing. This means you should avoid using credit cards or opening up new lines of credit prior to closing. Something seemingly as innocent as opening up a department store credit card can change your loan approval. The same goes with adding to an existing balance. This will not only change your credit score but it will change your debt level. There will always be another sale or promotion. Wait until you close to start shopping for household items.
Items on Title. The loan approval process has changed the way attorneys do title searches. In the past this was one of the first items done. Today most attorneys like to see a loan approval before they order title. The title will contain any current liens on the property. Ideally the liens will only consist of mortgages but there can be other items as well. These items must be paid to clear title before closing. The seller typically takes care of these but if the lien is old it could take days to find contact information to make payment. This will push your approval back and could require an extension for the commitment. The sooner you can get a preliminary loan approval the sooner the title search can be ordered.
Low Appraisal. Once the loan application is completed your lender or broker will order an appraisal on the property. In a perfect world the appraisal amount will be at or slightly above the purchase price. Since the appraisal is really just an estimation of value there is a chance it comes in lower. If it does it does not mean the deal is dead. The lender can fight the value and send up comparable sales to support the value. If this doesn’t work the seller can lower their purchase price to the appraised value. If the seller will not budge the buyer can opt to pay the difference in price at the closing. Appraisal problems can be a hurdle but they don’t have to be a deal breaker if you have the right team in place.
Knowing that the process may not be as smooth as you expect is the first step to getting your loan closed. The next is dealing with issues as they come. As a buyer you need to be much more involved in the process than you were even just a few years ago. Unexpected and last minute loan items in today’s mortgage environment are much more the norm rather than the exception.