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The Adventures of a First Time Home Buyer
Part 7 ~ The 11th hour...now is the perfect time for something BAD to happen!
The Adventures of a First Time Home Buyer
Part 7 ~ The 11th hour...now is the perfect time for something BAD to happen!
Alright...we’ve conducted our home inspection and have successfully negotiated with the Sellers for those items which need to be corrected/repaired prior to closing.
Now enters the “Pending” phase!
Typically, there isn’t too much more drama left, but it is helpful to understand that there are still some additional steps in the transaction that may lead to unforeseen challenges or delays.
The Appraisal
Immediately following the inspection, your mortgage specialist will order an appraisal.
The underwriter for your loan will need to know if the house you are purchasing is worth the value/price you have agreed to pay.
There are several possibilities that may occur as the result of an appraisal:
2. The property appraises at the full value, but there are some conditions for funding that need to be remedied prior to closing. Even though you have conducted a home inspection, the Lender may require other issues to be resolved before they can provide funding. This is especially prevalent in VA or FHA transactions which have more strict standards. These additional conditions or issues NEED to be negotiated with the Sellers for correction.
3. The property appraisal comes in under value. In this instance, the appraiser has determined that the current market value of the property is below the agreed purchase price. In most cases, the financing contingency of your contract provides language that protects you as the Buyers and offers you some options to address this issue. Basically, the Seller will need to adjust their price or you, the Buyer, can back out of the agreement.
Homeowners Insurance
Once you’re under contract you will want to contact your insurance agent to determine if the property can be insured. There may be instances where the current owners have submitted significant claims against the property, thereby making homeowner’s insurance very costly or difficult to obtain. Once again, your contract should contain language that protects you in this event.
Underwriting
This is where the ultimate decision is made to approve a loan and it is also the least understood portion of the entire process.The underwriter reviews the ENTIRE loan file. Everything from the income documentation, the asset documents, the appraisal and the title binder are all reviewed. The underwriter compares the information to the guidelines set by the bank or lender. The decision to approve the loan is guided by three principles
- Credit – the borrower’s past credit history is a good indicator of whether or not the borrower has the intention of repaying the loan. R
- Capacity – This is a mathematical computation to show that the borrower has enough income to pay for the loan. The underwriter will look at wages, regular and overtime and whether or not the person has worked on the job for more than two years. All of this factors into determining the borrower’s capacity to pay any existing debt on top of a new mortgage.
- Collateral – This is where the appraisal and title insurance come in. The underwriter will go through the appraisal to see that the home is being compared to very similar properties. The title binder is studied to make sure there are no “unknown” liens preventing the borrower from taking over ownership of the property.
Once the underwriter has determined that all rules are being followed according to the lender’s policies the loan will be signed off and sent to the closing department.
This, for us, was the absolute worst part of buying a home. Boo-Bear doesn't get paid like the rest of us do as an OTR! Verifying his income proved very stressful for us. We had to supply documentation after documentation after documentation...it seemed like it would never end...in fact, I wanted to quit after a while and just continue to rent. Our mortgage broker assured us that this was NORMAL!