A Thought Provoking Week…
There are weeks where issues come up during the loan origination process that makes me think “I have to tell the community about that!” These can be just random speed bumps that can be avoided, or they can be serious potholes that can detour the entire process.
Last week was one of those weeks!
Appraisals, home improvements and permits:
If recent work had been done on a home, appraisers are expected to prove and document that the work had been properly permitted. If the appraiser notes that a bath had been added and does not determine if proper permits were issued, the underwriter will request documentation to determine that the bathroom was installed legally.
Be sure to ask your selling clients if they had executed permits prior to any recent work within the past 5 years. If they didn’t get permits, you may want to try to get an inspector from the city or town to provide permits prior to listing the property. Just last week, we had a situation where a bathroom was added in the basement of a home and now has to be removed prior to closing. Needless to say, a situation that could have been avoided caused stress and frustration for both the buyer and the seller.
Commitment dates and extended closings:
Mortgage Commitment letters have expiration dates. This can create some concerns when a closing is months later than the Mortgage Commitment date. The law states that the following documents expire after 90 days and must be updated:
• Income: Pay Stubs
• Assets: Checking, Savings, Investment, Retirement
• Credit: Must be re-pulled after 90 days but should not be re-pulled early
• Appraisal: Good for 120 days before a new appraisal is required
The timing on these documents can create issues. For example, an investment or retirement account may only send out statements quarterly. Also, borrowers who are paid monthly may have to wait 30 days before they can provide the documentation required to update the Commitment Letter and extend the expiration date.
ALL loan approvals are at risk if the borrower ruins their credit, loses or quits their job or if they spend their down payment money. This is true whether their Commitment Letter is issued 3 weeks prior to the closing or 3 months. It is important to work closely with your lender and your buyer so you fully understand what needs to be done to update the Commitment Letter.
Conversely, we have buyers with extended closing dates who are required to submit an application right away. This is fine as long as there is no requirement to order the appraisal as the buyer would be required to pay for a second appraisal if the first one has expired.
As always – if you have questions, thoughts or concerns about the timing of a transaction, give us a call and we will walk through the scenario with you to find a solution that is beneficial for everyone.
A Thought Provoking Week…