More and more I am seeing and hearing about last minute mortgage delays- closings up in the air until the last second, sellers with moving trucks waiting in the parking lot, and more. So why are these mortgage delays happening? Here are the top 4 reasons (check back on Thursday for other 3 reasons).
Reason 1: Processing Delay
The buyer’s contract is accepted. He is expected to make loan application and pay the appropriate application fee for the lender to order credit and appraisal. But, the fee is nearing $500, so they want to wait until the whole house inspection is complete rather than loose the $500. Loss of time is 12 to 14 days, sometimes longer if they try and re-negotiate items for repair.
Reason 2: Tighter Standards
Credit standards were tightened. Every day brings new underwriting guidelines. Wage-earner stated income loans were an early casualty. Today, there is no common sense underwriting. The Loan Quality Initiative requires that lenders fully process their loans like the old days, however, just before closing the lender has to “re-verify” employment, “re-verify” credit obligations and “re-verify” property value through an automated valuation model. Adding a small debt to their obligations could stop the closing. A questionable appraisal could require a second appraisal. Now, lenders are processing loans twice, not just one time.
Reason 3: Fraud – Systemic Changes
Fraud is the mortgage industry’s #1 issue still today. Fraud is defined as a material misrepresentation, misstatement, or omission that is relied upon by an underwriter or lender to fund, purchase, or insure a loan. With fraud bombs falling everywhere and lenders going under every day, there is heightened sensitivity to anything that smells like an early-payment default. Certain states and regions of the country may experience more fraud, but, underwriting standards are established nationally, not individual markets.
Reason 4: Seasonal Factors
Summer is peak buying time. Add to this employee vacations and you have less workforce to get the loans through the system. Thanksgiving, Christmas, New Years, and July 4th holidays all punch holes in the work week. People leverage time off by combining vacation days and holidays, causing further staffing shortfalls during these peak times.
So there you have it, the top 4 reasons for mortgage delays. Here is what I tell all of my clients as they are getting ready to make an offer and start the loan application process: Get All Your Paperwork Ready! Every day it takes you to hunt down that tax return or call to get your bank statemenst is an extra day that your loan application sits and sits and sits. With plenty of other reasons for delay- let’s not make waiting for your paperwork another one! What some more advice- check back in on Thursday, I might have saved a gem or two for then 🙂
And if you are thinking of buying a home- call me, I can help make this process as smooth and stress-free as possible.