Common Problems with the Mortgage Process
From pre-approval to closing day, the entire mortgage process can be a stressful experience, even when everything goes to plan. But while everyone will always do their best to make sure the process goes smoothly, there’s always room for error.
That can present a big problem.
Little hiccups in the mortgage approval process can turn into significant delays, and you don’t want to hold up your move any longer than is absolutely necessary.
Fortunately, being aware of some of the most common problems that can occur when getting a mortgage, and the process that goes along with that, allows you to be better equipped to handle any mistakes or issues.
Here, we break down some of these potential problems so you can be better prepared should any of them arise.
Look For Title Issues
A title is the documentation that shows the homeowner does indeed own the home and has the right to sell the property. It sounds simple, but it can actually be complex.
You see, when the homeowner doesn’t make good on a loan, the lender can put a lien against the house. In a sense, this means that the lender then “owns” a portion of the property (the amount that the homeowner owes).
It’s also common for contractors to put a “builder’s lien” on the home when doing major home improvements to ensure they get paid. Since homeowners frequently make updates to the home before putting it on the market, this is something to watch out for.
To sell the property, the homeowner is going to have to make good on the money owed so the lien can be removed. Most of the time, this doesn’t turn out to be a problem in the end. The homeowner can pay off the lien using the equity in their home.
However, it’s possible this would slow down the mortgage process, and if there’s not enough equity in the home to cover the liens, there could be big trouble. For a small fee, you can check for liens on a home, but it’s worth it for the peace of mind.
The benefit of building a brand new home means you won’t have to worry about a lien as there’s no previous owner!
What Did the Home Inspection Find?
Most purchase offers will have a home inspection contingency built into them. This means the buyer is allowed to hire a home inspector – at their own expense – so they can feel confident in knowing there are no hidden problems. If the inspection brings up any serious problems, the buyer can legally walk away from the offer. Often, when small or large problems arise, the buyer and seller will negotiate an arrangement regarding who will pay for the fixes.
If there are issues found in the home inspection, fixing these problems can slow down the mortgage process, especially if you’re requiring the homeowner to make repairs before you finalize. One option is to lower the price to account for the cost of repairs, but you and the seller have to come to an agreement.
Additionally, in very rare circumstances, the inspection turns up a problem that significantly decreases the value of the home. If the value of the home is below the price on the contract, the bank won’t fund the mortgage.
The simplest way to avoid any of these issues is by purchasing a brand-new home. With modern building standards and materials you know you’ll be getting the very best in terms of quality and safety, which negates the need for an inspection. And in the rare event that there is a fault or defect, you’ll be covered for up to ten years by the Alberta New Home Warranty so you can sit back and relax, knowing you’ll have nothing to worry about.
Financing Issues in the Mortgage Process
When you’re going through the home buying process, one of the first steps is to get your mortgage pre-approval. Remember, this is more thorough than a mortgage pre-qualification. The bank requires you to submit paperwork that proves your stated income, including tax returns and pay stubs. They’ll also pull your credit report to check your score. At the end of this process, you have an offer from the bank, stating how much money they’ll let you borrow and what your interest rate will be.
In most cases, that offer holds for at least 60 days. However, if there is a change to your financial situation, such as job loss, paperwork error, or a change to your credit score, the bank can change or rescind their offer.
Before finalizing the mortgage, the lender will want to see updated financial information, such as a current pay stub and/or the most recent tax return. If you don’t promptly reply to these requests, you’ll be holding up the process.
Finally, there can also be a financing issue if the appraisal on the home comes in at less than the amount you’re planning to borrow. This can sometimes happen in a hot market, where homes are selling at more than the asking price. But it can also happen when there are unexpected problems with the home. This takes time to resolve, and may ultimately mean you won’t be able to purchase the home.
Free Resource: Your Guide to the Home Buying Process
What Can I Do To Avoid Problems?
You can’t prevent every single problem that could come up in the mortgage process, but there are definitely some things you can do to minimize the chances of something going wrong.
Keep An Eye On Your Credit Score
Keep an eye on your credit score, and make sure it doesn’t take a dip while you’re waiting for your mortgage to come through. Consider using a credit monitoring service so you’ll be immediately notified of unusual activity.
In particular, you shouldn’t take on any new debt before you move into the new place. Remember, lenders factor your total amount of debt compared to your income (the debt-to-income ratio, also known as DTI ratio) into their decision.
They want to see a DTI ratio lower than 36 to 43 percent. If you go on a shopping spree getting new furniture for your new home, that increased debt could push your ratio over the lender’s limit, causing your financing to fall through. This is true even if you plan on paying off the balance in full the next month.
Have a Stable Income
Besides your credit score, income is one of the most important pieces of the mortgage puzzle. You especially don’t want any adverse changes to your job.
For instance, if you were to lose your job, it’s pretty likely you would no longer qualify for the loan unless you qualify based on your partner’s salary alone.
Something else to note: changing jobs between the application and finalizing your mortgage will slow down the mortgage process. Even if you are earning more at the new job, a lender could feel nervous due to the lack of history at the new place. Generally, lenders want to know you’re at least past the probationary period in your job before approving a mortgage, so it’s something you want to keep in mind.
Throughout the mortgage process, the lender will be asking you for various things. This includes the application, pay stubs, tax returns, and other types of information. You need to be watching out for the lenders’ calls and respond to them quickly. If you’re not giving them the paperwork they need in a timely manner, it will slow down the process.
You’ll also need a real estate lawyer ready when it comes time to close on the home. It’s best to hire this person ahead of time.
Often, a lender can give you a detailed to-do list so you can stay on top of all of your tasks.
Purchasing a Brand-New Home
Many of the problems we’ve mentioned are far more common when a person is buying a resale home. With a new home, you’re not going to find a lien on the title. And since pricing is based carefully on the cost of materials and current market rates, you can rest assured that your appraisal is not going to come in lower than the price of your home.
This isn’t the right move for everyone, but if you do buy a brand-new home, it’s pretty safe to say you get to enjoy a smoother process.
The mortgage process is a complicated one, with lots of moving parts between a lot of different people. In most cases, it runs smoothly, but delays can be costly. In the event that something does come up, it’s always best to be prepared.
Some things may be out of your control, but at the very least you can make sure everything on your side is in order.
We’ve highlighted a few of the most common issues that can arise in the mortgage process and what you can do about them, but you can also speak to one of our new home experts if you need specific advice or have any questions.