wise home buyer

 Word to the Wise

Just about every real estate professional can tell you about a real estate deal that hit a brick wall for one reason or another.  Probably the most frustrating and heart breaking collapse comes due to inability to obtain financing.  

The interesting thing about getting a mortgage loan that most people are unaware of is that prospective home buyer's have to qualify twice to buy the home.  

When a buyer talks to a mortgage lender for the first time and a 'file' is started, usually the lender "pulls credit" and issues a pre-approval based on the credit score and information provided about income and employment and debts.  At this point, if not previously, the home shopping begins.  

Once the home buyer zero's in on their dream home, makes an offer and comes to an agreement, the rubber meets the road in terms of getting a loan.  The loan application is completed and documentation is provided to verify the income, assets and financial obligations of the borrower.  An appraisal justifies the homes value and then the file goes to underwriting.  Underwriters look at the file and make sure it qualifies for the loan based on the loan programs guidelines and usually conditionally approves the loan.

Some lenders do a good job, based on wisdom from past catastrophe's, of informing buyers about 'round 2.'

Round 2 is what I call the problems that happen between the point that data is collected the first time by lenders and the closing date.  

What some home buyers aren't expecting is this:  that the mortgage company or investing bank waits until the closing is imminent to review the file again and verify that the data collected initially hasn't changed.  Employment status, credit score, debt to income ratio and more can be re-evaluated on the closing date to make sure the bank isn't making a bad loan.  

 

So what usually happens?  Typically buyers are fine, but every real estate professional can tell of instances where buyer's bought a new car, or bought a new dining room set "no money down" just to help furnish the home.  Other things can happen too.  All the focus on home buying can take the focus off paying bills on time or depositing paychecks on time.  Bounced checks, late payments, large influxes of money, changed jobs or large purchases all can have a HUGE affect on whether a buyer will end up closing on their wonderful new place or not.  

So if you're a home buyer, BE ON GUARD!  The time between loan application and closing is crucial.  Banks can review every little detail of your financial life so be prepared to explain everything and WATCH OUT FOR ROUND 2!

For more information, visit the St Louis Home buyer blog post on the 10 Commandments for St Louis Home Buyers