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Mortgages

How Mortgage Problems Unravel Home Deals

Credit...The New York Times

On the road to homeownership, the stretch between an accepted offer and the closing is fraught with detours that can leave buyers in a ditch. While no deal is a certainty until the last signature is applied, buyers can take some preventive steps to help ensure their purchase stays on track.

One of the most common reasons deals derail in today’s markets is failure to disclose key financial information. Borrowers should be absolutely forthright about their financial circumstances when seeking lender pre-approval for a loan. The strict regulatory environment does not leave much room for surprises.

If a borrower is behind on real estate taxes or child-support obligations, for example, the lender will uncover that information when it checks for tax liens and court judgments, said Douglas Rotella, an executive vice president and loan originator with HomeBridge Financial Services, a nonbank lender operating in 49 states.

Another rookie mistake: using credit to buy new furniture or a car while a mortgage application is still pending. Lenders recheck borrowers’ credit just before the closing date, and the appearance of new debt obligations is cause for concern, Mr. Rotella said. Borrowers should check with their lenders before making any major purchases before closing.

Other omissions are more “wacky,” Mr. Rotella said, recalling a HomeBridge client who failed to disclose to her underwriter that she had been married six times and had six aliases. “The current husband knew about it,” he said, “but he didn’t think it was an issue.”

Borrowers can’t afford to make these mistakes in hot metropolitan markets these days. In order to remain competitive with other buyers, they must be secure in their financing before making an offer, and savvy real estate agents will refer them to mortgage professionals known for being thorough and getting deals done, said Kate Bates, an agent with Houlihan Lawrence who works in Darien and New Canaan, Conn.

In California’s Silicon Valley region, where nearly every house is getting multiple offers right now, and sellers balk at deals contingent on mortgage approval, buyers must go beyond pre-approval and obtain a loan commitment ahead of time, said Mia Simon, a real estate agent in Redfin’s Silicon Valley office.

A loan commitment means that the file has passed underwriting, Ms. Simon said, so that all that is required for final approval is an appraisal and a final call to verify the borrower’s employment.

A low appraisal, though, can also thwart a real estate deal. “This is the biggest reason a deal would get derailed in our appreciating market,” Ms. Simon said.

Silicon Valley sellers have taken to slightly underpricing their properties in order to draw more bids, she added, noting that receiving 10 to 15 bids per property is not uncommon. And in this climate, she said, properties will sometimes sell for as much as $400,000 above list price.

That may be good for sellers, but it can be a problem for buyers when the bank appraisal comes in. Lenders set the loan amount based on the appraised value, not the contract value, so if the appraisal comes in below the sales price, the buyer’s financing may come up short.

“Buyers have to be prepared to make up the difference in cash if the appraisal comes in low,” Ms. Simon said.

Storm damage could be another deal breaker. Extreme weather can wreak havoc on housing markets. In the Houston area, for example, the severe flooding of the last few months has “killed a lot of deals” as a result of property damage, according to Tara Waggoner, Redfin’s managing broker for the Houston area.

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A version of this article appears in print on  , Section RE, Page 6 of the New York edition with the headline: Why Some Deals Unravel . Order Reprints | Today’s Paper | Subscribe

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