Congratulations On Your Loan Approval… Now What?

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)

Sincerely,

Mark Hanewich, Esq.
Berlin Patten Ebling, PLLC

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.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

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On or about September 30, 2011, an anonymous reader provided a response to a blog Berlin Patten had sent to its readers regarding who can or should be engaged in the negotiation of short sales. While we debated whether or not to further comment on the subject (as the blog response did not really specifically…

Short Sale “Pre-Approvals”

We are frequently asked about listings being marketed as “pre-approved” in the MLS. We suspect this designation is intended to imply or suggest that there can be a quick closing.  We feel that the use of the term “pre-approved” can be misleading and lead to unrealistic or false expectations. Other than a pre-approval under HAFA,…

Short Sale Negotiations

We have been asked by several real estate agents to investigate whether or not a title company or title agent can conduct short sale negotiations. One of Berlin Patten’s contacts at the Florida Department of Financial Services, Bureau of Investigation, Title Services, responded to our inquiry as follows: “The license for a title insurance agent does not…

Assignable Contracts & Specific Buyers

Please be advised that short sale lenders are getting very strict about approving the specific buyer identified on the contract. As such, lenders are carefully scrutinizing assignment provisions in contracts. Short sale lenders who are reviewing contracts (that permit the contract to be assigned) are kicking back the contracts more and more frequently.) Lenders are…

Berlin Patten’s Short Sale and Bankruptcy Services

Real Estate professionals are frequently confronted with listing a short sale property encumbered by two or more mortgages and a seller who is strongly considering bankruptcy as its “exit strategy.” We have struggled with that same scenario… working on a short sale for months, and then the seller decides to file for bankruptcy. At that…

HAFA Policy Changes for Servicers

Lenders’ inconsistent eligibility requirements seem to be the most consistent thing we have seen with respect to the Federal Government’s HAFA (Home Affordable Foreclosure Alternatives) Program.  The Federal Government seems to have taken notice. On August 9, 2011, the Home Affordable Foreclosure Alternatives Program adopted certain policy guideline changes.  The changes, we presume, are in…

Short Sales – Working with Second Lenders

Anyone who works with short sales knows that it can be very difficult to get short sales approved when there is a second (or even third lender). To successfully complete a short sale, ALL lenders (among others) must agree. The problem is that in many instances, they do not. In fact, we have seen situations…

Deficiencies and Deficiency Judgements

We spend a great deal of time counseling prospective short sale sellers regarding the advantages of attempting to pursue a short sale rather than allowing their property to go through the foreclosure process. Many people do not realize that the foreclosure process is a two step process. The first step is the sale of the…

Bank of America Realtor/Broker Listing Agent Certification – Questions and Answers

The new Bank of America Realtor/Broker Listing Agent Certification (the “Certification”) has fostered some significant concern among real estate agents. The most common questions and our comments/responses are as follows: 1. Question: Does paragraph 1 of the Certification mean that Bank of America will not pay a commission. Answer: No! Bank of America never paid…

Bank of America Document Warning

Please be advised that Bank of America is now requiring the parties to a short sale transaction to execute certain form documents before they will consider your short sale for approval. The buyer and seller will be required to execute a new addendum, and somewhat interestingly, the agents involved in the transaction will also need…

Nonlawyer Assisting the Short Sale Seller: Ministerial Acts or UPL?

As you know, short sale negotiations (and negotiators) are coming under great scrutiny by local and federal authorities. There are significant new disclosures for non-attorneys, and now the Florida Bar is weighing in on the subject. In essence, various proposals under consideration by the Florida Bar suggest that a great deal of the short sale…

FTC Issues New Rules for MARS

The Federal Trade Commission (FTC) has issued new rules that might impact real estate practitioners who represent clients involved in short sale transactions. The Mortgage Assistance Relief Services (“MARS”) regulations define anyone providing services which assist or attempt to assist the consumer in negotiating a short sale as a “MARS” provider. Depending on certain factors,…
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