There are several pitfalls and no-no's that can be avoided up front in the loan process if you know what to look for. I've listed several below for your review:  

Dishonest Loan Consultants who bait and switch:

There are still quite a few bait and switch schemes going on.  Prior to submitting a loan application and letting a Loan Consultant run your credit report, request a Good Faith Estimate and Truth in Lending.

These documents will document how much you are going to pay in fees to obtain the loan.  If the Loan Consultant won't give you these forms, prior to running your credit, don't do business with them.  Sure they don't have your credit report, but most borrowers know if they have less than perfect credit.  They can quote a range of rates, but the fees shouldn't change a whole lot, except for an increase in loan origination point(s) from "A" paper to subprime.

If they won't give the Good Faith Estimate and Truth in Lending in writing prior to pulling your credit report, shop elsewhere to get your loan.

Inexperienced Loan Consultants

A few years back the Los Angeles Real Estate testing center for new licensees had so many new applicants taking the real estate test one day, that the Department of Real Estate had to rent out the L.A. Convention Center since their testing room wouldn't hold everyone. 

That should give you an idea on how many people are obtaining their real estate license in the past few years.  This also means that there are alot of untrained or semi-trained people out there.  The real estate business has many twists and turns to it, and it's always changing. Not all lenders look at things the same way.  In other words an inexperienced Loan Consultant may have your best interest at heart, but a lack of product knowledge, communication, loan interviewing skills,  necessary savvy, and not being able to explain the documents sent to you in the mail, (quite a few), can make for a bad experience, or worse, risk a loan denial, so be careful!

 

Not all loans are "cookie cutters"

 

Every loan has it's unique in's and out's.  Not all loans fit "in the box".  Some loans need some elbow grease and massaging.  Most of the new Loan Consultants today, are trained to do one or two types of loans because they can get too overwhelmed by the numerous types of loans out there.  The old saying goes "you can't fit a square peg in a round peg hole" holds true to lending as well.  Sometimes no matter what a Loan Consultant does, a lender may still deny a loan to a borrower.  If the credit score isn't quite high enough for the lender's liking, or if the lender doesn't like the income stated on the application (on a stated loan), the loan just isn't going to work.  The Loan Consultant has to know when to switch gears and find creative options to make the loan work and not waste your time.  It truly takes some time to get to know the nuances of the lending business.  I've closed 3000+ loans over the past 15 years.  Put my experience to work for you.

Lack of Communication and Honesty

Lenders sometimes can create last minute hoops to jump through if they feel that a fact is being concealed from them. 

A seasoned Loan Consultant will probe and look for  worst case scenarios when doing the initial loan interview.  The scenario needs to be looked at from a loan underwriter point of view.  Underwriters are trained to put all loan data under a microscope and look for risks. They protect the lender.

A Loan Consultant is more like a filter.  Be honest with your Consultant.  If there is a credit problem, or lack of funds to close the transaction, or if you're going to be switching jobs, this kind of information is vital to the loan process.  The Consultant should know all the facts, but only pass along the facts to the Underwriter that will help your loan get approved.  We as Consultants though must also realize that underwriters are very experienced and have seen thousands of loans, so the wool can't be pulled over their eyes.  It's a fine line.  There may be also compensating factors that can help your loan get approved on an exception basis.  So if your credit score is a bit low, and you have an abundance of savings in the bank, the underwriter may still approve the loan because you've demonstrated the ability to save money, which lenders like.  So make sure and be honest and upfront with your Consultant, it will go a long way.

Get Prequalified Before You Buy!

 

This is a must!  I see deals where individuals see a home for sale and give a deposit and go into escrow to buy the home.......without having a loan!  The process than becomes a nightmare and ruins the experience.  A prequalification means that your credit has been ran, and your income and assets have been approved by an underwriter.  You have a preapproved loan amount without having a home in mind.  

Today most sellers of property require you to get prequalified prior to making a purchase, but sometimes they don't and that's where the problems starts.

Click here to get prequalified or call me today for your free prequalification! 

Kevin Walton

Cell: 805-276-1942

 

Other no-no's

1st time homebuyers need a little coaching as to how the credit game works when it comes to buying a home.  Sometimes even long term homeowners don't realize how little things can affect your FICO credit score, which in turn directly affect your chances of getting loan approval on your pending real estate loan.

10 things you should not do when you are in the process of obtaining a real estate loan are:

1. Do not apply for any new credit or raising of credit limits on existing credit cards.  Reason: The lender may pull your credit report again right before your loan closes to make sure your bill paying and spending habits are the same as when you originally applied for the loan.  Pulling your credit for any new credit or extension of credit will lower your FICO credit score, and a newly opened account will lower the score even further.

2. Do not apply to buy any new vehicles, new furniture or appliances.  Reason: The same reason as above, it will affect your FICO credit score in a negative way.  Wait until escrow closes to make any purchases.

3.  Don't change jobs until escrow closes.  Reason: Your loan will be delayed or even denied.  The delay will be caused due to the lender needing to verify your new employment, as well as re-verifying your old job.  If the new job is in a different industry, your loan may be denied.  Even if the pay is higher than the old job, your loan may be denied.  Keep in mind, when applying for a new job, many employers pull credit reports.  At the end of the loan process, if the lender pulls a new credit report, and sees a different employer name listed (the employer info will show on the credit report), than what is listed on the loan application, you will have issues.

4.  Do not touch any monies in 401k, or other liquid accounts without checking with your Loan Consultant.  Reason:  Those funds may have been needed to qualify for the loan.  Lenders do last minute checks to make sure the funds originally listed on the application, are still available.

5.  Try not to leave town the week your loan is funding.  Reason:  If a last shread of documentation is needed, not being available to provide it could cause a delay or denial of your loan.

6.  Do not close, or transfer bank accounts that are listed on the loan application prior to escrow closing.  Reason:  This makes lender go crazy!  It creates a paper trail mess.  Again wait until escrow closes.

7.  Do not make any abnormal deposits into your liquid accounts without checking with your Loan Consultant first.  Reason:  If you need to provide asset documentation for reserves or closing costs, the lender needs the funds to be in the account for 30-90 days (varies depending on the lender) prior to escrow funding.  If all the sudden, a large deposit pops up and it hasn't been in the account for the required amount of time, the funds can not be used toward the purchase of your home.  Your cash flows in your account are being monitored by the lender.  Any unusually large deposits will throw up red flags.  If this situation happens to you, than you may to get a "cash gift" from a relative. 

A cash gift is money given to you by a relative, that is meant to go toward your closing costs or reserves.  The person who gave you the cash, is the donor.  Some lenders want a bank statement from the donor to show that they had the money in their account to give to you.  Than, the donor must write a letter that states that the money is not a loan, it is non-repayable, a gift.  Lenders all have different rules on the maximum a gift can be, and limitations on what the money can go toward (reserves or closing costs.)

Be honest with your Loan Consultant upfront to avoid any unpleasant surprises that may result in a last minute denial of your loan.

8.  Pay your existing mortgage payment and other debts (for refinance loans) Reason: If your new loan doesn't fund on time and you haven't paid your other debts in anticipation of some of them being paid off with the proceeds of your cash out you are to be receiving from the new loan, your credit report may get hit with late payments.  Lenders are notorious for delaying fundings on loans.  Large workloads, untrained staff etc...can lead to lender delays.  If delayed, the lender may have to pull a new credit report, since reports are only good for 30-60 days, and if the new report shows delinquencies, your loan may be denied.

9.  Do not start any home remodeling prior to or during your refinance.  Reason:  Lenders will not lend on real estate that is currently under renovation.  That would be classified as a construction loan.  Wait until escrow closes than start your project.  The appraiser will mention in their report if they saw a remodel in the process, which will than alert the lender.  If the appraiser fails to report the remodel, and the lender finds out along the line, the appraiser is subject to a nasty lawsuit. So rather than put themselves on the line, they report what they see.

10.  Try not to over react when a problem arises on your loan.  Reason:  Sometimes if a lender denies the loan or is asking for documentation you can't provide, there may be a remedy.  An experienced Loan Consultant may have to change lenders or adjust the loan criteria.  The Loan Consultant may be able to massage it thru, or provide alternative documentation to satisfy the lender. 

If you feel your loan is taking too long, and you are not being given a satisfactory answer that makes sense as to why the delay, changing lenders may be in your best interest.

Honesty is a two way street!

Call me for details or click here to apply to get prequalified today!

Kevin Walton

Cell: 805-276-1942