“Chutes and Ladders” with Mortgages

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Wow!  New Good Faith Estimate(GFE) rules from HUD, new HUD-1 Settlement Statements for use with the new GFE’s, new appraisal rules for Conventional loans, new HERA (Housing and Economic Recovery Act) rules affecting most loans and designed to give consumers time to rethink mortgage scenarios…..it’s mind boggling. 

OK, so the lender can’t order my appraisal (or collect the money to pay for it) until four business days after I apply for the loan, but they MUST issue me a binding GFE within three business days of my application….I get that. 

But what if something changes along the way? What if I decide to add some upgrades to my house and the price increases? Or I decide to try for a 15-year loan instead of a 30-year loan? Or what if we can’t close within my loan lock-in period and interest rates change? What if I win the lottery and decide to make a larger down payment? 

Do you remember playing a board game when you were little called “Chutes and Ladders”? I do. I start out and the bottom of the board and roll the dice and move through the square spaces, trying to be the first player to reach the top of the board. Sometimes I landed on a square with a ladder letting me fly up to a higher row (lucky me!!!). Sometimes, however, I landed on a square with a “chute” (think playground slide with twists and turns) and had to slide back to a lower row and climb back up again.

Today’s mortgage process is just like Chutes and Ladders only there are no ladders and lots of chutes. 

Changes Delay Closings

Adding upgrades I would like to roll into the purchase price? “Chute” back to start and wait for the lender to issue a brand new GFE with the new sales price. Remember the lender has 3 business days to do this.  Does that mean that a new appraisal must be ordered? 

Sorry, can’t do that for at least 4 business days.  If my original appraisal has already been done, I must pay for this new appraisal separately – the appraiser did his/her job and should be paid.  Will I get the same appraiser who is already familiar with the property?  Hopefully, but maybe not under the provisions of HVCC.  Hopefully the new appraiser sees the same value the original appraiser saw.  If not, big long nasty “chute” back to square zero because I may have to renegotiate with the seller.  New price = new GFE (within 3 business days).

Did the delay for the new GFE and re-order of the appraisal eat up a couple of weeks of your 30-day (not business days, but regular calendar days) loan lock-in period?  Is the end of your lock-in approaching and you’re not ready to close because of changed circumstances? 

Hmmmm……  What if interest rates have increased ever so slightly? Are you willing to pay a fee to extend your lock-in time period?  If not, your rate will now “float” until 10 business days before your closing, when it will be locked in whether you like it or not. 

But wait!!!  An interest rate change upward requires a new GFE, which the lender must get you within 3 business days of that rate change. “Chute” back at least 3 business days in order for the lender to be prepared to provide the new GFE to the closing attorney. 

How to Avoid Closing Delays

My stomach is hurting from all the “chutes”! Want to avoid the “chutes”? Try this:

1) Negotiate the whole deal before applying for a loan.  Think through the upgrades, price reduction in lieu of repairs and negotiate all this upfront.  Make sure about having sufficient cash for the down payment, closing costs, escrow reserves, moving and all related “moving to new home” expenses. 

2) Make sure the contract contains a sufficiently lengthy FINANCING CONTINGENCY PERIOD to allow for the loan to be originated (3 business days), appraisal ordered (minimum 4 business days plus a couple of weeks for the appraiser to do his/her job) and all my credit and employment information to be verified and processed. The best estimate in 2010’s market is to allow for 45 days for a Conventional loan and 60 days for FHA or VA. 

3) Seller not happy with a sufficient FINANCING CONTINGENCY PERIOD? The seller is free to receive, negotiate and accept back-up offers. Many listing agents and sellers forget that they may line up other contracts in the wings “just in case”. Remember that those buyers are also dealing with “Chutes” of their own.

4) Do not change anything once the loan application has been made. Do not buy a new car or refrigerator; do not change jobs; do not co-sign for anyone else’s debt, etc.

Has this new rule slowed down any of your closings? What do your clients think of the rules?

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5 Responses to ““Chutes and Ladders” with Mortgages”

  1. Sandi Rodrick Says:

    All those “chutes” remind me of another game in Vegas where you roll the the dice but propriety forbids me from mentioning it’s four letter name here. Still, with all the chutes effecting the new standards, #4 of your closing delays list says it all- be prepared when you make loan application, plan ahead and don’t change or buy anything until after the transaction has closed! Even then, it’s advisable to wait a while before making changes. This was good advice from mortgage people in the 70’s and it even better advice from mortgage people today. Sometimes, the more things change the more they stay the same! Thanks for the good information that buyers can “take to the bank”.

  2. Yvonne Thomas-Brooks Says:

    I second Sandi’s statement; this is good information that buyers can “take to the bank”.

  3. Lorelei Fischer Says:

    I appreciate your keeping a sense of humor about all of this! And, I appreciate helping make it clear what is happening everytime a little change is made. I’ll be forewarned and proceed per your advice, Ann! Thanks.

  4. Christina Poodt Says:

    Thanks Ann as always for your advice and wisdom and, as Lorelei says, for your sense of humor about all these new developments! I wonder if those guys that caused this mortgage meltdown in the first place, making all these new changes come forth, realize what their non-regulated actions from before would do to the mortgage business going forward: where needed but laborious regulations just seem to make selling homes like sitting on a roller coaster ride. And it is not as much fun as Six Flaggs! I don’t even want to mention how this all affects short sales! The only good thing is that short sales take time any way, so all this will train folks to be a lot more patient about the process of buying a home. Any one want to be paid in time along the way???

  5. sherri schaefer Says:

    I am finding it very frustrating. It seems like Ive had nothing but chutes lately. Fortuantly, it seems sellers are willing to hold on and try to help solve the rollercoasters ride…..

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