Home Buyers . . . Will Your Money Be There In Time For Closing?

Just because you have a pre-approval from a mortgage lender to buy a home doesn’t mean that the money will be there when you need it.

When I first met John and Mary (not their real names), they were first time home buyers, interested in Richmond, VA real estate and all excited about the prospect of owning their first home. After getting pre-approved by a mortgage broker they had found through their own research, they contacted me to help them find their dream home.

With the real estate market in Richmond, VA being the way it was at the time, it only took a few visits to prospective homes to find one that was nearly perfect for them (there is no such thing as the perfect house, by the way). After a bit of negotiating, we had a contract and the process of moving towards real estate closing began.

All was going well until about three days before the scheduled closing when I heard from my clients that their mortgage broker told them that there was a problem with their loan approval process. The lender was missing some documentation and could not provide the funds needed at closing to buy the house until this was cleared up. Closing delay number one.

My clients cleared up the issues and a new closing date was set for two days later. A day before this closing date, my clients received another email from the lender stating that there was yet another problem and closing would be delayed again for another three days. Closing delay number two.

When we inquired for clarification, we could not get a hold of the mortgage broker and he did not return phone calls for days. Meanwhile, no one knew what was going on and the closing was put on hold until we could talk with my clients’ lender who seemed to have disappeared. Closing delay number three.

We finally found out that the mortgage broker had left for vacation and would not be back for about a week and there was nothing anyone could do until he returned. Well, we didn’t wait and eventually got to talk with the manager, who kept dodging us as well and we were getting no closer to closing. Boy, was this a mess as you can well imagine. My clients were living in a motel with furniture in storage and the owners had moved and still paying on their old mortgage.

This kept going on and on. We were told that we would close "tomorrow" and when tomorrow came, we would close the next "tomorrow". It was not until my clients had gone to another mortgage lender, this time a bona fide banking institution instead of a broker, that their existing mortgage broker finally said that they now had everything they needed and we could close "tomorrow".

Well, this time it really happened, but it was almost six weeks from when the closing was originally scheduled Can you imagine? It all made me cringe and boil with anger for what my clients had to go through and my hands were tied. Mortgage brokers do not have to be licensed and can get away with a lot of shenanigans.

An uncommon real estate occurrence? Unfortunately, it is not. I am sure that almost every Realtor® you talk to will share a similar experience. You would be appalled at the number of times that mortgage approvals fall through at the last minute and derail a real estate transaction, leaving both buyers and sellers in a lurch, not to mention all the other people involved like settlement attorneys and staff. The saddest thing about it all is that there is very little one can do about the tactics that mortgage brokers use to convince home buyers that they will have the money that they need, even if they are unsure whether that will actually happen in time for closing.

Why does this happen? Very simple - mortgage brokers will shop your loan to a number of lenders until they find the best deal, usually for them, and they do this a short time before the closing date. Once they find a lender, the company that is actually putting out the money for the house, the lender performs an in-depth credit search on the buyers.

This is called underwriting and it is one of the last steps for loan approval. If there is anything missing or not up to the lender’s requirements with the buyer’s credit audit, the lender will not give the money and the mortgage broker now has to shop around some more to find a lender who will give the money, which then delays the closing. Sometimes they find one, but valuable time is lost, and sometimes they don’t find one and tell their clients that they don’t qualify for a loan.

When delays occur, what you will hear from the mortgage broker is that the underwriter needs this or that in order to complete the application. What the broker isn’t telling you is that it is a different underwriter each time the broker shops your loan and that’s why more documentation is needed because something is always missing it seems whenever the broker finds another underwriter and the closing date keeps moving out.

Just getting a pre-approval letter from a mortgage lender or broker does not guarantee that you will actually get the money for your new house. It only means that your credit score has been checked and that you fall within a certain range of pre-approval, but until underwriting, nothing is certain. What does help to ensure that you will receive the money when needed is a mortgage commitment. This basically says that the lender has checked enough in order to determine that you are eligible to receive the loan and will get it. However, many lenders will not offer one until all information is checked and approved and the buyer has found a house.

It is prudent for the home buyer to talk with several mortgage lenders including brokers and traditional lenders like banks who actually provide the money. This way, you can be assured of what your options are and the differences between each one. You can then determine which loan package and lender is right for you. You have something to compare and also fall back on if something goes awry.

It is also very important for the home buyer to be truthful with the information provided to the lender. If anything is held back or covered up, it will only come up later and that puts the closing in jeopardy.

So, remember that your mortgage is only guaranteed to the extent to which your lender goes to qualify you. There is much involved to get to the point of commitment and lenders don’t like to go through the entire underwriting process until the milestones of the closing process are reached, such as the home inspection and appraisal.

There is some helpful real estate and mortgage information on one of my favorite websites at http://www.VirginiaRealEstateNetwork.com They have resources that might make a difference for you and help you understand the whole process better. You can also find homes for sale there.

Shop around You are buying money, lots of it. You are the customer and you have choices. To the lender, money is a product that they want to sell to you. They can’t make money when it is just lying around in their bank. Without you, they have no business, so get the best deal that you can. Let your lender know that they have competition. Only then will you be able to figure out what your best option is. Ask questions until you fully understand.

Ciao for now,
Bernie Rosellen, Your Agent In The Field

Please keep in mind that my statements above are based on my personal experiences and observations around the neighborhoods of central Virginia. Some statements may not reflect fully the situations, regulations and laws of other states nor apply in all areas, so please see what applies in your state (my disclaimer to keep me out of Realtor Jail).

About the author:
Bernie Rosellen is a Virginia licensed Realtor®. He works with both home buyers and home sellers and specializes in the Richmond, VA area including Chesterfield, Henrico, Powhatan, Goochland, and Hanover counties. Besides actively practicing real estate, Bernie writes real estate articles as "Your Agent In The Field"™ from the perspective of being out in the neighborhoods and in the trenches of real estate. You can find out more about him and the real estate market in central Virginia at his website http://www.TheRosellenTeam.com