|Paragraph 8 FINANCING in both the “AS IS” and the “Standard” FR/BAR Contract* is the section of the Contract dealing with financing of a purchase by a Buyer. The purpose of seeking financing is to obtain approval for a loan, thereby permitting the Buyer to close on the Contract. This is defined under the Contract as the “Loan Approval”.
Most borrowers, notwithstanding how well qualified or poorly qualified, will quietly suffer in anxious anticipation (some more quietly than others), for the coveted Loan Approval. During the approval process, and continuing on through the Closing Date, good loan originators will counsel their borrowers to strictly observe conservative spending practices, so as not to trigger a denial or some lesser exception that might affect or delay the issuance of a Loan Approval.
In this regard, here are some simple yet prudent tips for Buyers/Borrowers to observe and follow from the time a loan application is made throughout the loan process (and including the Closing Date), in order to enhance the likelihood of achieving Loan Approval:
· Do not purchase or lease an automobile. Lenders look closely at an applicant’s debt-to-income ratio. A large purchase, such as a car lease, a car loan (even a cash purchase), can greatly affect those ratios and thwart a borrower from qualifying for a mortgage loan.
· Refrain from moving or transferring assets from one bank account to another. These transfers show up as new deposits and complicate the application process. Under lender regulatory requirements, borrowers must disclose and document the source of funds for each new account. Typically, lenders want to see that funds have been in an account for 60 days (which is why lenders ask for two months’ bank statements).
· DO write your Earnest Money Deposit check (or wire), from an account that you disclose to your lender. Writing a deposit check (or wire) from an account that you did not disclose to your lender is a sure fire way to cause a delay, if not an outright denial, of the loan application.
· Do not change jobs. Most new employment relationships come with a mandatory probation period (some as long as 180 days), during which the new employee is more susceptible to being terminated. Any probation period will need to be completed before income from the new job can be considered by the lender for qualifying purposes.
· Resist the temptation to buy new furniture or major appliances for the new home. Any such new purchase may increase the amount of debt for which the borrower is responsible on a monthly basis or appear as a large debit on follow up bank statements. New or additional debt increases the risk of disqualifying a borrower from loan approval, or reduce the amount of available funds needed to meet closing costs. Lenders have minimum requirements for borrowers’ cash reserves (which vary from lender to lender).
· Be certain not to pack or ship financial information that the lender may request in support of the loan application (i.e., tax returns, paystubs, bank statements, etc.). Similarly, important personal papers such as W-2 forms, employment agreements, divorce decrees, and marital settlement agreements should not be boxed up and put on the moving truck with your household goods. Duplicate copies can take weeks to obtain, and could delay the Loan Approval and stall the closing date of the transaction.
· Do not apply for new credit cards!! Applying for a credit card is an application for credit (an increase in debt), that will negatively affect an applicant’s credit score. Additional debt will not only cause a reduction in an applicant’s credit score (which increasing numbers of lenders are re-checking just before Closing), but also change a borrower’s loan-to-value ratios, resulting in an otherwise qualified borrower becoming non-compliant with the lender’s qualifying standards.
As always, should you have any questions with regard to Loan Approvals, we urge you to contact your local real estate attorney, or one of the attorneys at Berlin Patten Ebling, for additional guidance.
* the FR/BAR Residential Contract For Sale and Purchase, and the “AS IS” Residential Contract For Sale and Purchase (approved by The Florida Realtors and The Florida Bar, version (6/19) © 2017)
Mark Hanewich, Esq.
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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