Make sure the process is as smooth as possible
The homebuying process can be overwhelming, even for the financially savvy or experienced buyer. Stricter lending rules are partially to blame, but the bigger problem is you, dear buyer.
Yes, there are exceptions to every example, but during my years as a loan officer the biggest hurdle in 90% of delayed closings was the buyers’ lack of preparedness. I get it, it’s far more pleasant to parse Trulia or Realtor.com for your dream home than it is to spend hours organizing your financial documents. However, when you apply for the loan, don’t be surprised if it hits a roadblock because of your procrastination.
To illustrate my point, let me tell you a story that I’ve experienced more times than I care to recount:
The Story of Joe
“Joe” wants to buy a house so, naturally, the first person he calls his real estate agent. The agent tells Joe he needs to get his financing in order, but Joe shows up to his viewing appointment empty-handed. Joe’s agent doesn’t want to waste his time, and he doesn’t want Joe to go to another agent, so he takes him out anyway.
Of course, Joe finds the perfect home on that first viewing; since it’s a seller’s market, his agent advises him to make an offer before another buyer snatches up the property. Joe frantically calls his loan officer at 5pm on Saturday evening, letting her know he needs a pre-approval right now! His loan officer silently seethes, while interrupting time with her family to get Joe’s pre-approval ready.
Joe submits his offer Monday morning and the seller finally reviews his offer Friday. Lo and behold, Joe doesn’t get the home. The process rinses and repeats ten more times before he has an offer accepted. After thirty viewings and thirty pre-approvals, his real estate agent and loan officer are exhausted, but at least the end is in sight.
Three days after his offer is accepted, Joe goes on LendingTree and sees that a competitor bank is offering a rate that is 1/8th of a percent lower than what his loan officer’s bank can give. Joe decides to apply with the other bank so he can get a better deal, and ignores his loan officer’s impassioned follow up calls and emails.
The loan officer at the new bank is thrilled to get Joe’s business…at first. The deal needs to close in 30 days, but Joe assures his loan officer that his financial situation is very good and he makes LOTS of money. Upon questioning, however, Joe reveals he is self-employed. His loan officer urges him to send the required documentation as soon as possible, but that night Joe starts helping his children with their homework and forgets to call his accountant.
When Joe finally sends his documentation a week later, his loan officer discovers that yes, Joe has LOTS of income, but he also has LOTS of expenses. Since Joe’s file now requires an exception, it has to go through multiple levels of underwriting. Joe’s processor and underwriter have 50 files on their desks that need to be looked at today. Joe is getting impatient. He’s thinks just because he’s done what he needs to do, the process is complete.
When the underwriter finally reviews Joe’s file, she realizes there is important documentation missing and sends his loan officer to collect it. Joe can’t believe it; he’s provided everything short of a blood sample already, but after huffing and puffing, he finally sends the missing documents.As a result of the new documentation, the underwriter discovers that his income does not meet the lending guidelines and declines the loan. Joe is irate and blames the bank for delaying his process, not understanding his individual situation, and wasting his time. Meanwhile, his real estate agent and both loan officers have done hundreds of hours of unpaid work and have to deal with anger from Joe, Joe’s attorney, the sellers, the listing agent, and the seller’s attorney.
how can you avoid becoming a "Joe"?
1. Stop looking at houses before having your financing in order
2. Organize your documentation and have it accessible
Salary Only (no non-salary income sources)
Self-Employed and/or Other Non-Salary Income
3. Keep your credit clean
4. Keep your bank statements clean
Your best bet is to set up ONE account you’ll use for the down payment and closing costs, and then move any money you’ll be using for the transaction into it long before you apply for a loan. If you can’t follow that advice, be fully prepared to document the source of any unlabeled deposits or transfers from point A to point B all the way to point Z. If you are expecting cash payments or large gifts that you won’t need to use (lucky you!) put that money into a separate account and don’t make any transfers into the account you’re using to purchase the home.
5. Last but not least, be respectful of and loyal to your real estate agent and loan officer
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