News


How Long Does it Take to do a Loan?

Jun 23
10:46
AM
2016
Category | General

One of the most common questions a loan officer is asked is, “How long will my loan take to do?” Of course, when hardly any documentation was required, loans took much less time. But now, with increased underwriting, documentation, and so forth, it is taking longer. And in some instances, much longer. Refinance applications and appraisal complications are holding up home sale closings, according to a recent survey. According to the report, the normal timeline for a closing is about 30 days. However, the survey found the timeline to be between 45 and 60 days.

Adding to the average time is the length of time required for short sales and sales of foreclosed homes. These have always taken longer to close, but since this component made up over 44% of the nationwide market in September they have really added to the timelines. The survey of 2,500 real estate agents found that one major source of delays among short sales is mortgage origination preapprovals, which sometimes expire before all interested parties agree.

Sales of foreclosed homes are encountering delays when property damage complicates the appraisal process. In many parts of the nation Realtors are saying, “Much more than half, and in some cases three-quarters, of all distressed property closings have been delayed because of loan conditions.” And in some states, like California, laws are further aggravating the problem by forbidding forced deficiency notes on short sales. Under the new law, “seconds are not willing to settle,” stated one California agent, adding, “Mortgage application timelines run out for the buyers waiting to receive acceptance, counter or declination.”

Experienced loan officers tell clients, however, that well documented loans can sail through the system – they see it every day. They are in the ideal position to tell borrowers what is required, and how long it should take to fund your loan.


“Should I keep renting, or should I buy?” This is a recurring question of anyone with a landlord. The answer to that question is most assuredly, you should buy. That being said, increasing numbers of renters these days are not taking action. Some believe that we will see another real estate bubble, or another recession. But it could also be likely that renters simply don’t realize that they can afford to buy. Here are some reasons why buying can be both attainable and affordable, and why now may be a smart time to consider homeownership.

Unlike renting, buying a residence is an investment. Every time you pay your mortgage, you are increasing the equity in your home and your own financial wealth, versus paying rent, which is only increasing your landlord’s financial wealth. Moreover, rent payments in many US markets are increasing each year, but the payment on a 30-year, fixed-rate mortgage doesn’t increase.

It’s good to remember that a seemingly small increase in the value of a home can translate into a high percentage return on a borrower’s investment. For example, a borrower purchasing a $100,000 home and putting 20% down or investing $20,000 would actually enjoy a 22% return on their investment if the home grew just 4.4%.

Incomes are ahead of home prices and low interest rates are keeping ownership affordable. The national family median income is $64,751; to purchase a home at the median price with 20% down would require an income of $40,266, or $45,299 with 10% down.

Lastly, mortgages consume a smaller share of household income than they did in the past. Today’s owners devote 15.3% of their incomes to a mortgage, which is well below the 22.1% their mortgages consumed between 1985 and 1999. Meanwhile, according to Zillow, renters put roughly 29.5% of their income to rent, compared to 24.9% before the bubble.

As you can see, the numbers make a solid case: owning could very well be the better option and is achievable for qualified borrowers. One of the main things keeping renters from being owners is that they haven’t done the research or reached out to learn more about how they may be able to finance a home.


Sometimes loan officers are asked the simple questions, “Why should I buy a house? Is it a good investment?” Here in the United States the enthusiasm for buying a home remains remarkably strong. Recent surveys found that almost two-thirds of Americans think that buying a home is the best long-term investment a person can make.

But is buying a house really a good investment? There are plenty of non-monetary benefits to owning a home, but is buying a home a good financial call? As always, it depends on your individual situation, but generally the data suggest that compared to the stock market, buying a home has produced similar or better returns with less risk—especially over longer horizons.

If you compare the increases in the prices of homes and stocks by looking at the S&P 500, stocks seem much more attractive. Since 1975, the S&P 500 has increased more than twentyfold while over the same period, the Zillow Home Value Index, which tracks the value of the median house in the United States, has only increased in price fivefold. Once dividends and rents are included, however, and after accounting for taxes over the period from 1975 to present, the annual return of the S&P 500 is about 10% versus housing’s nearly 12%!

As a homeowner you don’t just benefit from the increase in the price of your home, you also could receive rent, or living in it “for free” after the loan is paid off. There are tax benefits in the form of deductions, versus actually paying taxes on stock dividends or bond income.

And the difference between 10% and 12% might sound small, but over a long period of time it can compound to quite a big difference. Over 40 years an annual return of 11.6% means that a dollar would grow to almost $80 but at 10.4% that same dollar would grow to just over $52. A difference of only 1.2% each year compounds into a difference of more than 50 percent over 40 years.


There are plenty of self-employed borrowers who need to borrow money to buy homes. And while the requirements are slightly different than those of W2 employees, loans are being made. Basically the guidelines that Freddie Mac and Fannie Mae mandate for the self-employed borrower are stricter than for the borrower who is an employee. For example, the income that the mortgage industry allows for a self-employed borrower is based on income that has been reported to the IRS and may even be averaged over a two year period; however, the wage earner who receives a raise gets to use that new income immediately to qualify for a mortgage.

For sole proprietors, the income that is used to qualify the borrower must come from the bottom line on Schedule C of the federal tax returns. It is called “Net Profit” and is divided by 12 to come up with the monthly qualifying income. The net profit is what is left after the tax payer deducts all of his expenses from his gross income. The more deductions the taxpayer claims, the lower the net profit and the lower the income tax liability; however, it also reduces the purchasing power of the borrower. Underwriters will typically ask for two years of federal tax returns plus a year-to-date profit and loss statement for the current year. Borrowers who own 25 percent or more of a partnership, LLC or corporation must also provide the partnership returns and/or corporate returns for one to two years.

Depending on the circumstances, an underwriter may not allow cash that sits in a business account of a self-employed borrower to be used towards the down payment or closing costs for a home purchase since the business may be hurt by a depletion of business funds. A CPA letter may be required that states the business will not be hurt by removing funds from a business account.

There may be other requirements, but the point of this reminder is that self-employed borrowers are not being excluded from the American Dream of home ownership – just that there may be a few additional underwriting steps.


There has been a lot of news about flood insurance lately,  So we figured it would be good to take a look at it, and give folks an introductory course in flood insurance.

First, all water damage is not flood damage. Flood insurance covers rising water damaging a building/home and its contents. Damage caused by other factors, weather-related or not, such as wind breaking a window and then rain damaging the interior, is not covered by flood insurance, and instead is covered by other types of insurance.

So far, so good – but an interesting thing happens when one combines condominium living (“legal structure for multiple-unit properties in which owners hold title to an individual residential unit as well as shared interest and ownership of the common building(s) and areas”) with flood insurance. Condo Associations are responsible under the property's bylaws and condo docs to maintain insurance against possible hazards on the common structure(s) and shared areas which may include the entrance and lobby, roof and exterior walls, parking areas, building structure, electrical, HVAC, elevator, and other mechanical systems, and offices, gym, clubhouse, and other shared amenities.

Flood insurance is an important part of that coverage for most condo properties. The determination of flood risk is generally the same for condo buildings as it is for single-family residences (year built, flood zone as shown on the FIRM, occupancy including number of units, type of construction and foundation including first floor design, elevation, location of building fixtures, machinery, and equipment. Since all individual unit owners also own part of the common areas and are members of the Condo HOA, they all pay a part of the flood insurance premium. So yes, that 6th floor resident does need flood insurance.

All lenders require sufficient flood insurance on financed properties located in flood risk zones. When extending a mortgage on an individual condo unit, lenders evaluate the building's and association's insurance coverage, and their risk management does not allow borrowers to be "self-insured".


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