NEW YORK (MainStreet) – Want to move into a new home by Labor Day? Sept 3, the deadline for many who want to be relocated by the start of school, seems like a long way off, but really isn’t given the glacial pace of mortgage approvals.
Many lenders are taking 90 days to approve loans. For the majority of applicants – people who are refinancing – that’s just an inconvenience and minor expense, adding a month or two of payments at the old loan’s higher rate. But for buyers with a deadline like the start of school or a new job, delay can be serious.
It’s a problem for sellers, too. Not only are lenders taking longer to grant loans, they are rejecting more because of today’s tight underwriting and appraisal standards. A seller can find a buyer – tough enough in today’s market – then wait three months only to find the buyer’s loan denied. The seller can continue showing the home during that period, but that’s a hassle and many buyers feel it’s a waste of time to look at a home under contract.
There are some ways to minimize the damage and expense.
The seller, for instance, should demand the buyer produce a lender’s pre-approval. With a pre-approval, the lender has verified some key factors in the loan application, like the applicant’s income, assets and debts. It is therefore a much stronger indication of the buyer’s financial strength than a pre-qualification, which is merely a calculation based on the borrower’s unverified statements about income and debts.
Seller and buyer should also make sure the home appraisal will be high enough to satisfy the lender, who probably will loan no more than 80% of the home’s appraised value. Appraisers are being tougher these days. Use sites like Zillow.com and Trulia.com to find recent sales data of comparable homes in the area. Ideally, the buyer should have cash in reserve to make a larger down payment if the appraisal comes in a bit low.
The buyer can minimize delays by gathering ahead of time all the documents the lender will require, including tax returns, pay stubs, statements from lenders, brokers, banks and mutual fund companies. Because loan officers are swamped these days, the buyer should keep abreast of all deadlines and be ready to hand-deliver documents or prod an employer to verify income.
Most important, the buyer should shop around for a lender that will assure a timely closing, as some manage it in 45 or 60 days while others are taking much longer. The real estate agent or mortgage broker may have some suggestions. Otherwise, you’ll have to phone the lenders.
Be sure to check with smaller local and regional banks, as well as credit unions, not just the big national banks that are buried in applications. Mortgages are commodities, and there’s no reason to limit yourself to the bank you already do business with if others offer better deals.
If your closing and moving deadline is critical, it might be worth selecting a lender whose fees are a tad higher. But be wary of paying a higher interest rate just to get a quick-closing loan, as that could cost you dearly over 10, 20 or 30 years.
For every $100,000 borrowed, you’d pay $477 a month at 4%, $492 at 4.25%. Over 30 years, the higher rate would add $5,230 in interest charges.