You have jumped all the hurdles of home-buying and can see the finish line glistening ahead in the distance. You are nearly there. You’ve found the house, made an offer (which was actually accepted!) and your preapproval letter is gripped tightly in your out-stretched hand. Nothing can stand in your way, right?
Unfortunately, until the deal is done, it’s not actually done, and that sparkling finish line might be farther off than it seems. You thought that preapproval letter was your ticket to the winner’s circle, but it turns out there are a few more hurdles to jump before it’s your turn to stand in the spotlight.
One of the biggest obstacles positioned between you and a successful closing is the home appraisal. In an appraisal, a professional, unbiased third party evaluates the property in question to determine its value based on current market values on other properties in similar condition with comparable features and location. Should a property appraise below the contracted purchase price, a mortgage could be denied or renegotiated to assure that the amount borrowed does not exceed the actual value of the property.
The Home Inspection
Different from a home appraisal and typically performed solely for the home buyer’s benefit, some mortgage companies require an inspection prior to closing. Should any large issues be found within the property, this precautionary step could compromise your lending. If permitted, homebuyers could choose to forego these measures, but it is not recommended as even the nicest looking homes can have all sorts of disasters hiding inside.
The bottom line – a home inspection is in a buyer’s best interest as they are the ones left with the mess once all the papers are signed. Even if the inspection results in a mortgage denial, rest assured that it is all for the best. A lender’s primary goal is to lend money in order to make money, but they will not approve a bad deal (and that’s a good thing for you, too).
The Loan Requirements
Although not a common occurrence, every once in a while, the conditions of a specific loan type might change from the time of pre-approval to the time of closing. Federal regulations or rules specific to the individual lender could be universally altered between the start and end of a home purchase as this process can be anywhere from 30 to 45 days. When this happens, the buyer’s original pre-approval letter may be rendered irrelevant given the changes, and other lending options might need to be considered.
Usually, when this happens, the borrower will only need to fill out some extra paperwork. It won’t mean you’ve lost the loan – just may take a few more days to approve.
The Almighty Credit Score
The number one rule to follow between pre-approval and closing is to avoid doing anything that will negatively affect your credit score. Changes to income, newly acquired debt, the loss or sale of assets, opening a new credit card, or a change in marital status could all pull that very important score down – and down can oftentimes result in denial.
Can’t wait to park a shiny new Mustang in that third stall of your soon-to-be garage? Ready to call it quits at the office to start the small business you’ve always dreamt of? About to drain your savings account to take off on a celebratory family vacation? While these all sound like stellar ideas, it is best to wait until the ink has dried on the mountain of closing documents. Any one of these grand plans could spell the demise of your home purchase and leave you driving that pretty new Mustang around town looking for a hotel that rents by the month. Our best advice: put all the other major life decisions on pause while in the process of home-buying because even a seemingly minor change can make a major difference in your credit score.
Ensure the Pre-Approval
Even with all of the issues that could arise during your mortgage process, it is possible to make things smoother. This is where your loan officer comes in. With an expert loan officer on your side, you can be assured that if any problems stand in your way, your LO will communicate them to you. Not only that, but they will also help you navigate your way through. Loans can be complicated, and the loan process doubly so. However, if you have a good team walking you through it, you’re sure to have your mortgage loan in no time.
While the race to buy a new home can feel like a sprint (especially in the current real estate market where houses are scooped up in a matter of hours), it is oftentimes more like a marathon down a long and winding road. You are sure to encounter some twists and turns and at least one or two obstacles you never saw coming, but with a little preparation, and a great lending partner, you will find that ever-evasive finish line is within reach.