Investment propertyCan I Relax Now That My Loan Is Pre-Approved?
When the question, "Is it safe?" is posed, somehow Dustin Hoffman in the
movie Marathon Man comes to mind. If you recall, Olivier"s ill gotten
fortune was indeed not safe after all.
When new homebuyers begin feeling rather smug and complacent after their
loan is pre-approved, they somehow think they can go on "autopilot" while
their house is being built. The truth is, a solid loan pre-approval with no
conditions is a fairly safe bet that everything will sail smoothly, but it
certainly is no guarantee.
During the months a new home is being built, varying factors can enter into
the "picture" the loan officer painted of the homebuyer and his ability to
re-pay a mortgage loan to the lender in question. Most of these factors and
responsibilities sit squarely on the shoulders of the homebuyer himself.
Safeguards for buyers (borrowers) to observe after the loan pre-approval and
before the home"s completion may include the following:
Changing jobs: Buyers represent themselves as being employed in a
particular line of work at a particular rate of pay, and may offer the lender
promises of salary bonuses or future commissions during the escrow process.
This may all look great to the lender, with verifications received from the
homebuyer"s employer of all of the above. The danger here is in making a
change after the fact. Many lenders agree that borrowers must have at least
two years" stable employment history with their employer, and if they must
change jobs, they should stay in the same line of work, have no gaps in
employment whatsoever, and leave only for a higher rate of pay. If bonuses
and predicted overtime are forfeited (they were not guaranteed) due to a
change of this kind in employment history, the lender must be notified that
qualifying conditions may have been altered since the original pre-approval
was issued.
For that reason, many lenders would advise buyers to fight the urge to make a
change in employment until after close of escrow, just to be completely safe.
Credit worthiness: During the "feel good" stage, anticipating the
completion of their new home, buyers oftentimes go crazy purchasing high
ticket items and racking up major charges on credit cards during the escrow
process. Buying furniture, deciding they want a newer car in the driveway,
and arranging for thousands of dollars in new appliances have a way of adding
up and kicking many homebuyers where they least expect it, suddenly affecting
their credit scores and loan ratios. Some buyers even take lousy advice from
well-meaning friends and real estate agents and skip or delay mortgage
payments, thinking they are already "home-free" during escrow. The rule of
thumb here is: make every payment due on mortgages, cars, etc. and try not to
take on any more credit during the escrow period, or it may preclude you from
qualifying when fresh credit reports are reviewed at the proposed close of
escrow.
Communication: Homebuyers, after a pleasant meeting with their loan
officer and a subsequent pre-approval is issued, tend to believe that no news
is good news. In theory this may be true, but only from the lender"s side of
the desk. After all, your loan officer does not have the obligation of
calling you weekly to see if any material changes have taken place in your
employment status, your money reserves or your credit worthiness. He or she
will also not check weekly or monthly with you to see if money has since been
removed from some of the accounts already verified. It is therefore incumbent
upon you, the buyer, to communicate any changes of this sort on a regular
basis directly to the loan officer. Communication is definitely the key
here, and the responsibility rests primarily with the borrower to maintain
his approval status.
The scary thing for homebuilders is the risk they take in banking on the loan
pre-approvals, using them as a green light to build and personalize homes
based on the premise that nothing basically will change. The hard truth is,
some pre-approvals can fall apart due to buyer neglect and mismanagement of
their assets and credit-worthiness. In these cases, builders must try to
re-market the homes that lose their original buyers to others who may not be
willing to pay for items already ordered and installed, and the builder loses
money.
Homebuyers may want to think of themselves as posing for a portrait at the
time of pre-approval. Nothing should basically change within that portrait
until after the escrow closes on their new home. No flinching, changing
outfits, or background landscape alterations should take place, with the
pre-approval photo "frozen in time." With that posture in mind, they may at
last be able to breathe easier and look forward with confidence to moving day.
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