Successful Closings...
I just read a great article that really hits on the key points to a smooth and successful transaction.
In this article, Dirk Zell points out that “Like a train, a transaction can get derailed at any point on the track. A closing can be hit by a clouded title, a home not appraising for value, a rapid change in interest rates, an undisclosed credit or income issue, or one of countless other unanticipated issues.
Choke points cause delays and delays cause all kinds of problems for buyers, sellers, and agents. Moving plans get thrown into disarray. Interim housing or early-possession requests become necessary. Contingency plans need to be thrown together. Nerves get jangled.” The resulting situation can be a nightmare for all parties.
Eighty percent of the problems in closing transactions fall into three basic areas.
- Documentation and verification: Lenders need to assemble considerable paperwork and complete dozens of documents based on information submitted by the loan applicants. Then they need to verify all information for accuracy by checking the applicant’s employment status, funds on deposit, and income level.
- Repairs, repairs, repairs: This is a choke point that good advance planning can avert, but the buyer could come back with a laundry list of items and if the parties can’t come to an agreement, this could be a deal killer.
- Underwriting of the buyer’s loan: This is the stickiest of all closing choke points because the underwriter has complete power to approve the loan, approve the loan with additional conditions, or suspend the file until certain conditions are met, in which case the borrower starts the underwriting process all over again.Underwriters check to make sure that the loan meets guidelines for debt ratio, loan-to-value ratio, credit score, employment history, and other qualifications. They also evaluate the loan based on whether it can be bundled with others in a big loan package that can be sold to Fannie Mae, Freddie Mac, or another entity that buys mortgages.Of all the choke points in a transaction, the underwriting process can cause the biggest delays. Expect that there will be times when underwriters slow things down with requests, especially if the home is in a high price range. Once you clear the hurdle, the documents can be drawn and sent to closing.
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