Smoother Transactions Begin at the Offer Level.
Solving these most commonly made oversights in the offer stage will not only save you time, but will eliminate any undue addendum needing signing, and will also eliminate the Title, Appraisal, and all loan documents having to be updated which would also cause delays in the loan underwriting process. These simple steps can save transactions from going out of the contract date, ensure the quality of the loan file and ensure the client rapport you have built, protecting your income.
Common oversights during a transaction:
USPS - Address verification
Lenders will always use the address associated with the mailing address which is assigned by the United States Postal Service. Generally, a REALTOR will use the address associated with the public record. In 70% of the cases, this data may be inconsistent. This may have been recorded incorrectly several transactions ago. It may say "Road" whereas the USPS will assign "Rd." This small and trivial error will cause for an addendum to change the address to match the USPS. Now the Title, appraisal and loan documents need to be changed to match the USPS, not the public record.
Never hurts to double check.
Name and Spelling
The purchase agreement must match the borrower(s)legal name. Often times, we will see a name on the purchase agreement which reads Mike Smith, however, the driver's license reads Michael Smith.
Ask your buyer if they will want to use their middle name or initial. If they do choose to use their middle name or initial, all the loan documents, the Title, and Appraisal must reflect this as well.
As you can see this trivial item can or would cause delays. If this is caught after the fact, here comes an addendum and changes in Title, Appraisal, and loan documents.
Legible Purchase Agreement
So many times we receive purchase agreements that have been handwritten then faxed for signatures and re-faxed several times resulting in an agreement that is not legible. We do understand at times we must have handwritten agreement or addendum, however, consider all people involved that must make assumptions of what they are reading.
To ensure quality and avoid the issues of one misunderstanding the purchase agreement, double check to make sure the contract is clear and decisive.
As we are in the offer stage, Seller disclosures may not have been reviewed or it may have been a Bank Owned Property. If the disclosures were available to make sure the Seller Disclosures are completed and signed by the seller. In loan Underwriting, if something was missed or not identified, this will cause the disclosures to be sent back through to the listing agent for signatures or explanation. Underwriters will look as if there is non-disclosure or as an issue that is unresolved.
You know how underwriters are now days, and we want to avoid problems and move onto the next transaction.
Contract Closing Date
It is normal to put in the contract a 30, 45, or 60-day closing date from an accepted offer.
Never assume a lender may need 30 or 45 days. Financing such as Conventional, FHA, Rural Development, or VA, along with the current turn times for that financing type may play a key role in getting you an accepted offer. Check with us before committing to a date as the program or underwriting environment may or may not allow for the closing date you have in mind.
We need to set the expectations up front to all parties involved, to eliminate stress in the transaction.
Seller concessions can differ with financing type or purpose of the transaction such as primary residence, second or vacation home or investment property.
Here is the general guideline that is used by Fannie Mae and Freddie Mac.
- FHA and Rural Development - 6% of the purchase price is the maximum seller concessions to be used for closing costs and prepaid items. Remember any government financing is for primary residence only. If you are utilizing FHA financing please remember the FHA Amendatory Clause. You can download just to your right.
- Conventional Financing - Primary residence - 6% for 10% or more as a down payment for closing costs and or prepaid items. If the transaction is less than 10% down payment, the maximum seller concessions are 3% of the purchase price. If the borrower is putting 20% or more as a down payment the maximum concessions will now rise to 9% maximum allowable concessions.
- Conventional Financing for an investment property will be limited to 2% of the purchase price
These type of fund are used regularly in transactions. The gift must come from an approved donor such as a family member or relative.
NOTE: Gift funds cannot come from a friend or a co-worker.
A couple that is going to get married may be able to use the gift funds from the fiance' if we can prove they are to be married with such documentation of a wedding invitation, a receipt for a wedding ring etc.
On a conventional loan, the borrower must have 3% of the purchase price in their own bank account seasoned for at least 60 days. If you add a gift to the account, for example, a wedding gift of $30,000. That 30k is subtracted from the current account balance against the 3% of the seasoned funds. We need to be very clear of the paper trails and account balances in the pre-approval stage for your client.
When you are prospecting you may hear that gift funds are to be used. This is a caution flag that must be addressed with the lender prior to any money being deposited into any account.
This checklist is designed to assist you and your client in identifying potential repairs associated with financing the loan.
Financing is available for properties that meet minimum health and safety requirements. If the property is deemed to not meet the minimum standards set for them by the Department of Housing and Urban Development (HUD), financing may not be allowable for this property.
Often times the seller of a property is unaware of issues that will stop the financing of the home. By you being aware of what an appraiser will be looking for may save your client hundreds or thousands of dollars on the purchase.
No Personal Items in The Contract
Many times we see purchase agreements with items including, lawn mowers, patio furniture, televisions, etc. These items cannot be in the contract as the underwriters and appraisers will isolate these items and associate them with some kind of value. They look upon these items as an inducement to purchase.
Example: "Buy my home and I will throw in a car."
These can or will not be put in the contract or the underwriter will assess a value to these items and subtract it from the price of the home.
EMD - Earnest Money Deposits
This is one of the most problematic items of concern which can cause delays in the loan process.
These earnest money deposits MUST COME FROM the buyer(s) on the Purchase Agreement own funds and accounts.
Example: If at the time of offer your client did not have their checkbook and Mom went ahead and wrote the check, this will not be approved by underwriting. It would be treated like a gift, not an Earnest Money Deposit