How Do I Avoid a Documentation Nightmare?

Q: A client’s friend recently bought a home and told my client the mortgage process was a nightmare in terms of documentation. Specifically, she said that the loan officer kept asking her for documentation on deposits into her accounts. How do I avoid this with my client?
A: If you were to talk to anyone who closed a mortgage loan recently, this would likely be a common complaint. Over the past three years, underwriting guidelines have become more and more stringent in regards to documenting assets on both purchase and refinance transactions. When underwriters see a large deposit into an asset account, they will ask for documentation of where the deposit came from.

The bigger issue, though, is that there doesn’t seem to be a common definition among different banks and brokers as to what a ‘large deposit’ is at this point. Some define it as any deposit over $500, while others will look at the file with a little more objectivity when it comes to the beginning account balance and the ability of the individual borrower to make that deposit based on income and net worth.

My advice would be to talk to your client about what you and your underwriting staff are going to deem as a large deposit so it doesn’t become an issue prior to approval.

Q: How can I insure that my client gets the best possible deal on a mortgage when I go to lock in an interest rate?
A: Your client is in a situation to shop around and lock in the best possible rates once they have a contract on a property. After pre-approving them, get their documentation early on to start a file and have credit run prior to writing a contract. To lock in an interest rate, you need to have about 70 percent of an actual mortgage application prepared and a recent credit report prior to locking – this works to the client’s advantage if you can be prepared to lock in an interest rate the instant the client has a contract and a closing date.

The ability for you to lock in a great rate for your client in an instant has never been more important. With the market as volatile as it is today, rates quoted at 9 a.m. can be gone minutes later. If you are prepared, it can be the difference between getting your client the lowest rate and not.

Q: While a client was shopping for an interest rate with me, they said they had another loan officer offer to pay them a $2,000 credit outside of the closing. Is this a common practice for lenders?
A: No, because it’s illegal. It violates the Real Estate Servicing and Protection Act and is not standard practice. Any credit given by anyone in a real estate transaction has to appear at the closing on the HUD-1 or Settlement Statement.

Joe Burke has been a loan officer since 2002 and joined Guaranteed Rate in 2009. He specializes in purchase transactions and believes in building strong referral networks with like-minded professionals. Burke also believes that there is nothing more important THAn a transaction that openS lines of communication and a quick return phone call. He can be reached by phone at 773.742.6707 and by email at joe.burke@guaranteedrate.com.

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