When a home loan transaction falls apart, it results in disappointment for the borrower, wasted time for the lender and frustration for the seller of the property. So, why would it happen? Here are some things that could cause a home loan to fall through.
Reason #1: Underwriting Errors
A home loan must be underwritten to the guidelines of the following entities: the lender, the service that will buy it, and Fannie Mae/Freddie Mac or FHA/VA. If anyone responsible for underwriting the loan only used one set of guidelines, then they would only be doing part of their job. The end result could be a failure to close the loan.
Some loans do not require private mortgage insurance to be involved; these are loans in which the borrower made a down payment of 20% or more (because if the down payment is more than 20% of the total loan amount, the borrower is not required to carry private mortgage insurance). In those cases, underwriting must only adhere to the guidelines of the lender and Fannie Mae/Freddie Mac and FHA or VA.
At Wholesale Capital Corporation, our in-house underwriters are meticulous in complying with all underwriting guidelines. This greatly reduces the prospect of underwriting errors and improves the likelihood of a successfully closed loan.
Reason #2: Low Appraisals
If the appraiser values the property at a figure that is lower than the price on the loan contract, that can cause the transaction to fall through. The reason: As lenders, the maximum amount we may lend – depending on the loan program chosen by the borrower and the terms/conditions of that particular loan program – is the value of the property itself. If the appraiser values the home lower than the amount the borrower has have contracted for, then the borrower will be unable to secure the full mortgage. How can that be remedied? Here are some options:
- The borrower can offer more money out of pocket to make up the difference
- The seller can lower the price of the home
- In some circumstances, the lender can order a second appraisal from a different appraiser
At Wholesale Capital Corporation, we have protocols in place to reduce the risk of a low appraisal from affecting our borrowers’ home loans, including:
- Working with appraisers who we trust to understand comparable property values in the area
- Recommending that the borrower’s real estate agent show the appraiser comparable property values in the area in an attempt to raise the value
- Facilitating communication between the agents involved
There are ways to mitigate a low appraisal problem; they key is working with a lender that knows how to do it.
Reason #3: Changes in the Borrower’s Lending Profile
If the borrower makes a mistake that changes his lending profile, that could cause the home loan to fall through. For example, he may obtain a new credit card or become delinquent on a current credit account; either of these things could lead to a change in credit score and potentially affect the viability of the loan. Another factor is income; if the borrower loses his job anytime between pre-approval and close of escrow, that could also cause the entire transaction to fall through. Nobody wants to see that happen.
Fortunately, we at Wholesale Capital Corporation do everything in our power to prevent these circumstances. Our loan officers are committed to educating borrowers throughout the approval and escrow process. That includes informing borrowers of their own responsibilities.
Ask Your WCC Loan Officer
Whether you have started the home loan process or are still considering it, you can use this information to improve your likelihood of a smooth home buying experience. Remember, your WCC loan officer is at your disposal for questions on the status of your loan; please call us at (855) 640-2020, or at the number your loan officer provided you, if you have any concerns.
Wholesale Capital Corporation is not affiliated with or acting on behalf of or at the direction of the Federal Housing Authority (FHA), the Department of Veterans Affairs (VA), or any government agency or government-sponsored entity. WCC is licensed by the California Bureau of Real Estate, Broker License #01147747 and CA Finance Lender’s License #603K610. Also licensed in Arizona by the Arizona Department of Financial Institutions, MB #0926199. Equal housing lender.