Why am I always hearing about issues with last minute lender delays just before the sales is about to close? How do you avoid that situation?

You can blame most of the delays on regulations. All mortgage lenders are being closely scrutinized.  The result has been microscopic examination of the borrower’s finances, regardless of how financially stable and credit worthy they may be.  

Be prepared from the start. Be sure that your credit report is correct. Clear up and/or consolidate as much recurring debt as you can before the process begins. If you are cashing in brokerage accounts, be sure you understand the timing for withdrawing the money and verify the money trail. If part of your funding is a gift, those funds will need to be traced.

The lender will have a laundry list of requirements up front, including credit report, tax returns, verification of funds and employment, etc. They will verify again just before closing, looking at your accounts for large deposits/ withdrawals, new loans.  Do NOT take on any new debt, i.e. buy or lease a vehicle, purchase furniture and appliances, etc. – until AFTER your loan has closed.

It’s hard to think of every possible scenario. Many delays can be attributed to poor communication. Stay in constant touch with your loan officer, especially as closing day draws near.

Pre-Approval vs Pre-Qualification for a Home Loan

I am starting to look for a home.  What is the difference between being pre-qualified and pre-approved for a mortgage?

 

Pre-qualification is an informal way to see how much you may be able to borrow. You can be pre-qualified over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford.  Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.

Pre-approval carries it a step further. It is a lender’s actual commitment to lend to you.  It involves verifying your employment and financial records and reviewing your credit history.  You will need recent pay stubs, W-2’s and tax returns, recent bank statements, long-term debt details and proof of down payment and/or gift funds.  Once you have a purchase agreement, the only thing left to do is the property appraisal.

A bona fide pre-approval carries more weight when presenting the offer to the seller and should make for a quicker and smoother closing.