Since the economy tanked, it’s no secret banks have tightened their lending standards. Borrowers need to at least have good credit, down payment and a stable job to buy a home -a far cry from the easy money days of the real estate bubble. And that’s still no guarantee they’ll get financing.
So if a borrower has all of the above, what else could go wrong to prevent lenders from forking over the money for a home? I recently sat down with Arin Crews of L.A. Mortgage to discuss the issue. She brought up a few key red flags that she’s seeing slow down or kill deals altogether.
1. Buyers and Sellers are rushing deals. In this day and age of short sales and foreclosure sales, some buyers and real estate agents aren’t taking the time to learn about home’s major maintenance issues. And the fact is sellers aren’t always willing to pay for such repairs when push comes to shove.
Even though a buyer and seller have agreed on a sales price, lenders may back out of the deal at the last minute if issues like termites, foundation work, and others have not been addressed. Crews encourages agents and buyers to slow down and do as much homework as possible before getting too far into the deal.
2. Appraisals are coming in low. It’s still hard to tell if the residential real estate market has hit bottom in many locations. So appraisers are covering their bases, and those of lenders, by giving very conservative prices for homes. And the fact is lenders are not going to provide financing for more than the appraised price. Real estate agents should also familiarize themselves with the Home Valuation Code of Conduct.
3. Self-employed borrowers are having to prove long-term revenue. Some self-employed folks took a significant financial hit when the economy soured. Fortunately some of those same folks have rebounded and are in the market for a home.
But lenders generally look at finances over a couple year period of time. So somebody who is self employed may be making money hand over fist today and still get declined for a loan if his/her 2009 or 2008 revenues were down.
Crews said some lenders may be more lenient than others if an accountant can help show that the borrower’s other finances are in line.
4. Condominium HOAs need to be in the clear. Many lenders will not finance condo purchases in developments where the homeowners association has pending litigation.
Some of Rodeo Realty’s agents found a niche last year selling only new construction condos. Sales were strong because builders have been liquidating condos, the HOAs are clean with no defaults, and the new developments are FHA approved.