Parkland residents, are you wondering if lenders really want to make loans?
We Parkland realtors are experiencing the same frustrating scenario many realtors are encountering in sunny South Florida. After we have met with a new, potential buyer, we introduce them to a competent mortgage banker who will ascertain his or her ability to buy a home. Once armed with a pre-qualification letter from the lender, we begin the process of finding our client the perfect home. Occasionally, the first home-hunting excursion can bring success. Usually, however, there are numerous outings before the “perfect” home is found. Once the home is determined, the process of negotiation begins. After we have come to an agreement with the seller, various steps occur prior to closing–the most important being the approval of the mortgage. Here’s where the frustrating scenario rears its ugly head….the appraiser for the lender appraises the property for significantly less than the purchase price. Even though we have a buyer and seller in agreement with the price and, often times, the buyer even feels he has secured a very good deal, the contract usually falls apart. The seller still wants the agreed upon amount for the home, but the buyer does not want to pay more than the home is worth and never the twain shall meet. In addition, the lender will not loan the amount of money indicated on the contract. At this point, it’s back in the car, starting over to find another “perfect” home. Now we’re all frustrated…the realtors, buyers and sellers and the question we’re all asking is, “Do lenders really want to make loans?”.
I recently discussed this all-too-often occurence with my mortgage banker, Justin Miller of Fembi Mortgage and his explanation clarified the situation. Justin had this to say:
As people go through the mortgage process today, they wonder if their lender has gone insane. Lenders ask for documentation repeatedly, constantly updating, asking for further clarification and explanation for everything. Income, credit, assets and appraisals are scrutinized at a level unseen in my 25+ years. It almost seems like they are trying to find reasons NOT to lend.
But, I assure you, that is not the case. The only way lenders can stay in business is to lend money. It is what funds the operation and pays for salaries, rent and paper clips. Lending is what creates the value of the company. No closings, no revenue, no company.
So why the perception of over-documentation and over analysis when we know the lenders have to make loans? This is the reality of a post-subprime world. Lenders became too liberal and under-documented files and forgot the primary role of underwriting (judging a borrower’s ABILITY and WILLINGNESS to repay the loan) as they approved files. And now, the pendulum has swung back to a very conservative stance. Common sense seems to have been replaced by a “Cover Your Butt Mentality”.
No one is immune. Appraisers err on the side of lower valuations and heightened criticism of a home’s condition. Underwriters labor over pay stubs, tax returns, bank statements and credit information. Closing agents meticulously examine title and closing documents. Each of them has learned their mistakes, miscalculations, or errors in judgment (no matter how minor) can result in a loss of their job, a bad loan, and/or monetary damages to their companies.
So, today I just wanted to counsel home buyers. Your lender WANTS to make your loan. However, understand they have been burned by borrowers, burned by their bad judgment, burned by moronic industry trends of the past. Lenders are going to be a little gun shy. If you can prove you are willing and able to repay the loan, lenders have plenty of money available at incredible (once-in-a-lifetime) rates. When you think your lender is asking for too much, know it’s because they want to say “yes” AND know that their decision is both a good and defendable one.