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10 Loan Processing Problems to Avoid When Getting a Home Mortgage in Today's Market

by June Bloom

The last thing you want or need when getting pre-approved for a home loan is delays that drag the process on further than you expected. Getting a mortgage loan can be a fairly straightforward and smooth process, even with stricter underwriting guidelines after the mortgage meltdown. However, there are some pitfalls to avoid that can delay your mortgage approval. Let's take a look at 10 of them in detail:

#1 Not Providing Details of Your Finances

A top notch mortgage lender will start the loan process by collecting all of your vital information:

  • Name and contact information
  • Social security numbers
  • Employment details, including current and past employers and income
  • Residence history
  • Assets
  • Debts

While this sounds very simple, many people have their applications unnecessarily delayed by failing to provide all of this information. If you neglect to provide any detail of your financial information, the loan may be delayed.

#2 Failing to Provide All Documentation Up Front

Your lender will need to have documentation of your entire life and financial profile. When you are planning to get a mortgage, collect all of these items for every signer on the application:

  • One month of pay stubs
  • Two years of tax returns and W-2 forms
  • Year to date profit/loss statement for self-employed persons
  • Two months of bank statements for all accounts
  • Explanations and paper trail for any deposits and withdrawals over $1,000
  • Home insurance quote with enough coverage
  • Full financial statements for any other homes and businesses you own

If any of this documentation is missing, it will delay your application. If you have any commissions in your income, your lender needs to be authorized to check your income with current/past employers.

Your lender will run your credit as well. This will uncover any employers, addresses, debts and credit inquiries that you failed to disclose. If anything new is uncovered, you will need to explain and document them.

#3 Mixing Up Loan Approval and Pre-Approval

Many new home shoppers confuse these and it leads to delays and stress. Getting your mortgage pre-approved means that you have talked to a lender and have provided most of the needed documents. They then have told you your profile looks good and you should be able to be approved for a loan up to a certain amount.

This is not a loan approval, however.

You still need to be approved by underwriting and obtain a formal home loan commitment in writing. Anything that is short of this means that your profile was looked over, but the loan approval has not come through yet. When researching first time home buyer programs it is essential to speak with mortgage executives that have extensive knowledge and access to a wide range of products.

#4 Not Giving Home Contract Details to Your Lender

This is often overlooked and causes trouble! Your purchase contract has very important information in it that your lender needs to know. For example, the contract states how many days you have to get your loan approved and how long you have to close.

You need to make sure your lender and agent are in sync. If you miss these dates in the contract, you could lose your deposit and lose the house.

#5 Being Unrealistic on Rates

When the seller accepts your offer on the home, you are in contract to buy the house. You are ready to lock in a rate. But you cannot lock before you are in contract.

You are subject to market rate movement while in contract. To avoid any surprises in your rate, you should ask the lender to quote your rate lock based upon the timeline of your closing.

#6 Credit Problems

You might think people would realize this but it happens a lot: Once the loan is approved, you are not in the clear! It does NOT mean that you can go out and run up a lot of debts. Before the loan closes, most lenders will run your credit again to make sure nothing has changed in your credit profile. If you have credit scores that are considered below average, then you should make sure you are working with companies that have a reputation for approving a home loan for people with poor credit.

So continue to be financially responsible – always! – but especially before the loan officially closes.

#7 Title Liens

A proper title search on your property is essential before closing. Many sellers may not know that their property has liens on it so they do not know to disclose it to buyers. If there is a lien on the home, it can delay closing for weeks to months.

#8 Walkthrough Problems

The final walkthrough of a home is the last step in the mortgage process. This is the last time you have to see the home before you buy it. Once in a while, damages or previously unseen problems will be noticed. The closing might have to be delayed until buyer and seller can reach an agreement.

#9 Delaying IRA or 401k Withdrawal

Some buyers may be using retirement account funds to make a home purchase. This is fine most of the time, but you should initiate the withdrawal at LEAST a week before closing. You want the money liquid in your checking account when you need it.

#10 Problems With Appraisal

If the home does not appraise for the value of the loan, there will be problems with the loan being approved. When you are going to have an appraisal, make sure the home is in decent repair and has been cleaned and is free of clutter. Some experts think that just having a clean and neat home can add as much as 5% to some appraisals.

Bottom Line

Pre-qualifying for a home loan and real mortgage approvals from a lending underwriter usually can be done without major problems, but the above issues can lead to serious delays, so avoid them!

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