What’s holding up your home loan? Avoid these pitfalls to speed the process

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | June 4, 2024

Article originally posted in Orange County Register on May 17, 2024.

Homebuyers, you’ve only just begun when income documentation, pay stubs, and down payment sourcing arrives in the hands of a mortgage broker.

Between your contractual obligations with the seller to perform and your lenders’ rate lock, you just don’t want to delay the day.

Here is a list of common borrower actions or inaction that can slow down a transaction or even completely derail the deal.

—Frozen credit. Make sure your credit report is unfrozen. The lender cannot check your credit when the report is frozen.

—Don’t delay wiring the deposit to escrow. Mortgage originators need a receipt of “earnest money deposit” from escrow in order to submit the loan. Nothing much happens until the buyer has skin in the game.

—Don’t delay signing the initial disclosures. Your lender cannot order an appraisal until you have signed the lenders’ disclosures.

—Don’t delay in providing a credit card to your lender for fee charges. It’s needed for the appraisal to be ordered and will be required for any HOA documents that might be needed.

—Always pay for an inspection and get it done upfront, even before spending money on an appraisal, for example. If the property doesn’t pass scrutiny, or you are haggling with the home seller late in the game about repair credits, it could delay the home loan closing. You don’t want to lose your rate lock because you aren’t ready to close.

—Avoid quitting your job, getting fired, or changing employers in the middle of escrow. Obviously, the loan application must go back to underwriting in order to recalculate the changed income to see if you still qualify.

—Avoid taking out new credit in the middle of escrow. Lenders monitor an applicant’s credit during the loan process. If you have taken on a new car payment or gone out and bought furniture for your new home, the lender will have to review the loan to see if you can still qualify.

—Do not send illegible documents to your lender. Every day, borrowers take pictures of required documents with their phones. Oftentimes, the images are of poor quality. It’s always best to scan and email documents or bring them to your mortgage originator to be copied and returned.

—Do not send incomplete documents to a mortgage lender. For example, if the lender needs all pages of your two most recent months of bank statements, even if the last page is blank, you must send that page in. Send all tax return pages and schedules along with your W-2s and 1099s.

—Undisclosed items: If you own other property, don’t hide it. Lenders have sophisticated intel from research companies that will not only uncover other properties in your name, but also matters like child support judgments, tax liens and the like.

—Not following instructions: For example, the lender might need a letter of explanation from you regarding a source of funds for a large deposit in your bank account (a large deposit is considered more than a work period’s paycheck). Don’t ignore the request. Don’t give the lender a response that is unrelated to the request.

—Mattress money. Down payment funds and closing costs must be sourced, usually from the borrowers’ funds or a gift from a relative, for example. Cash on hand doesn’t work. Remember, the lender is like the secret police for the IRS, only we don’t get paid. Your lender will ask you for the most recent two months of bank statements. If money comes from another source, a source like a paycheck from an employer is no problem.

—Don’t go out of town. Making yourself available by remaining available to answer clarifying questions from the underwriter or being available to sign the loan documents. Don’t go on vacation when you are in the middle of escrow.

—Don’t play shell games with your money. Don’t move your money around from account to account during escrow. It makes it very hard for a lender to source, follow, and track. Be sure to provide all bank accounts upfront if money from those funds will be used for your transaction.

—Pay your bills on time. Again, lenders monitor credit during escrow. Besides taking out new credit, you don’t want to hurt yourself with recent late bills, for example.

—Are you short of funds to close? Keep in mind the down payment and closing costs are needed along with escrow impounds, in some cases.

—Employment verification. Lenders must verify your job with either human resources, a supervisor, or even a company like the Work Number.

—Homeowners insurance preparedness. It’s getting harder and harder to find coverage, especially affordable coverage in fire prone areas. As soon as you go into escrow, you should be on the phone to learn if insurance is available for this property and pricing out that insurance.

—Get your taxes done and submitted to the IRS. Your lender will audit the tax returns with the IRS. If the IRS doesn’t have a record of what you gave your lender, it creates validation headaches that can and will delay your closing.

Freddie Mac rate news: The 30-year fixed rate averaged 7.02%, 7 basis points lower than last week. The 15-year fixed rate averaged 6.28%, 10 basis points lower than last week.

The Mortgage Bankers Association reported a .5% mortgage application increase compared to one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $320 less than this week’s payment of $5,110.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.625%, a 15-year conventional at 5.625%, a 30-year conventional at 6.25%, a 15-year conventional high balance at 6% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year-high balance conventional at 6.625%, and a jumbo 30-year fixed at 6.75%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.

Eye-catcher loan program of the week: A 30-year jumbo with 30% down at 6% adjustable after five years with one point.

 Jeff Lazerson, president of Mortgage Grader can be reached at 949-322-8640 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.