Common snafus undo mortgage loan applications

From the moment a home-purchase offer is accepted until the buyer closes a mortgage loan to finance the purchase, one or more common missteps can derail the deal.

Full financial disclosure by borrowers is a must in the tightly regulated mortgage lending business. Douglas Rotella, executive vice president and loan originator with HomeBridge Financial Services, a mortgage lender with operations in 49 states, said some loan applicants fail to disclose property tax delinquency and unmet child support obligations, which lenders will discover, anyway, in background checks for tax liens and court judgments.

Another mistake that inexperienced mortgage applicants make is buying new furniture or making another type of big purchase with a credit card while a mortgage application is pending. Lenders do a final recheck of a mortgage loan applicant’s credit prior to the closing date, and the discovery of additional debt can be problematic, Rotella told the New York Times. Some secretive loan applicants fall into the “whacky” category, she said, citing an applicant who failed to tell her mortgage loan underwriter that she had been married six times and had six aliases.

The stakes are high in hot markets like the Silicon Valley region of California, where almost every home seller has multiple offers, and few accept bids that hinge on mortgage approval.Mia Simon, a real estate agent for the Redfin agency in Silicon Valley, said successful bidders for homes first must obtain a loan commitment, not just a loan pre-approval.

Simon also said lower-than-expected appraisals can undo a mortgage loan applicant’ plans: “This is the biggest reason a deal would get derailed in our appreciating market.”

Mortgage lenders determine loan amounts based on the appraised value of a property, not the sale price, so if the appraised value is under the price, the financing may be inadequate. If the appraisal is low, Simon said, “buyers have to be prepared to make up the difference in cash.” [New York Times] – Mike Seemuth