5 Mistakes to Avoid During the Underwriting Process
As a follow-up to our article about the steps in the underwriting process we posted earlier this week, we decided to write about some mistakes to avoid during the underwriting process so you don’t mess up the financing just weeks before closing on the house. You’ve come so close to buying a new home, so avoid these roadblocks.
Click here to read our previous article: What is underwriting? How does it work?
Here are 5 things buyers shouldn’t do while the underwriters do their job
Not responding to emails from the lender
As we explained in the previous article, your loan underwriter may require extra documentation to clarify your financial standing. The underwriting process is time-sensitive, and time is money (hundreds of thousands of dollars worth). You should check your email multiple times per day, or have email notifications set up on your phone or computer so you can see when an email from your lender comes in. If you wait too long to respond, it could throw off the closing timeline.
Buying an improperly valued home
When an appraisal comes in low, it is a rare exception. If, in the rare instance, the appraisal for the home you are purchasing comes in low, that means that you and your agent submitted an offer that more than the property is worth. Talk to your agent and the seller’s agent about covering the appraisal cost difference. This will also involve potentially retooling your offer and extending the closing and underwriting timeline. Again, this is a rare occurrence.
Exceeding loan limitations
Different loan types have different limitations that the property must adhere to. Some, like government-backed FHA and VA loans, have certain minimum guidelines that must be met in order for the sale to move forward—which include, but are not limited to, sufficient heating, proper roofing, working electrical systems, functioning appliances, and at least one functional bathroom. Sometimes, buyers looking for a fixer-upper or demolition property can run into falling short of these minimum guidelines. This can disqualify the buyers from getting the loan. To avoid this roadblock, ask your lender for clarification about loan limitations early in the buying process.
Lying to your lender
Underwriting is the process of fact-checking everything you have given to your lender for your loan application. The most important part is about your finances since they are working on cutting you a check for hundreds of thousands of dollars and the bank wants to protect that investment. If you rounded up or fudged a few numbers based on what you hope you will have by closing time, a discrepancy will pop up and the lender will ask for clarification. If you can't come up with proof of funds your application may get delayed or denied. Be upfront and honest about your savings amount and financial standing.
Frivolous purchases while your home is pending
You may be so excited to get a bigger house and are planning to fill it with new furniture, buy that new RV for your RV bay, or get that pinball machine you’ve always wanted. Do not make these purchases until after you are handed the keys to your new home and the sale is fully completed. If you have a drastic change in your financial situation due to frivolous spending, the lender may halt the underwriting process to account for the change in your income or savings. This could lead to getting a smaller loan or denial of your application. However, if that massive spending or loss of income was due to a medical emergency or sudden job loss completely out of your control, speak to your lender about what your options are moving forward.