Ring, ring, ring. Hi, I want to buy a house but I am scared with the mortgage crisis. Is there anything which I should know beforehand? 

Definitely! The rules have changed in many ways and lenders are much more cautious than ever. Underwriting is tougher and appraisals are being closely scrutinized. The bottom line is to allow ample time for underwriting as more paperwork is being requested. Lenders are shifting away from streamlining the approval process to having to document every piece of information. Granted you can’t blame them, but sometimes this reaches the level of absurdity.

The good news is that loans from North Carolina are considered as having less risk than those from other states which translates into better pricing and fewer restrictions. 

Since there is more work and documentation involved in each file, underwriting is taking longer. This directly affects how the Purchase and Sale contract should be completed. The new North Carolina Purchase and Sale contract has set new deadlines within which the seller and buyer must respond to each other and specifying the consequences of the failure to act within the stated time frame.

Loan approval must be obtained within so many days of the signing of the contract. The penalties are very steep as the seller can retain the buyer’s earnest deposit. Therefore, allowing ample time for loan approval is absolutely crucial. The best step is to consult with your loan officer before signing the contract to determine a good safety margin for the number of days to allow for loan approval. 

In addition to setting the time frame for the transaction, the initial consultation has become even more crucial to review the steps in the loan approval process. Some borrowers say, “I am very well-qualified and I have done this many times before, so why do I need to see a loan officer before signing a contract?”

The reason is not whether the borrower qualifies, but whether their documentation qualifies since the requirements are changing almost daily. If there is any additional documentation which will be needed, obviously it is easier to get it ahead of time. Also, many lenders have closed their doors which means more loans for the remaining ones. Each underwriter has increased pressures so the better the documentation is upfront, the faster and smoother it will go through.  

Lenders are striving to protect themselves. Previously a loan which met Fannie Mae or Freddie Mac guidelines would be acceptable. Now additional layers of requirements are being added by the lenders. Borrowers have to jump through more hoops to get to the closing table. The problem is that you don’t know how high those hoops are going to be at the outset. A loan can be originated with one set of guidelines and by the time it reaches underwriting, those guidelines could have changed. The good news is that in most cases these issues can be resolved one way or another.  

The real stumbling block has been appraisals. Our values have held up well, but some underwriters do not believe what our North Carolina appraisers are saying. Many underwriters are located in other parts of the country which have been experiencing real distress. They are being influenced by what they see in their local neighborhoods. This colors their viewpoint, and as a result, they don’t believe our appraisers. They are continually asking our appraisers for additional proof of how they arrived at their values. The good news is that appraisers have been generally able to substantiate their figures, but here again, time is being added to the approval process.  

As some doors to loan programs are closing, some are opening up. FHA is a great option for those who may not be as well-qualified. No doc loans are gone, but some stated loans under certain conditions are still available. The key is to plan strategy ahead of time as lenders do want to lend money and interest rates are still very favorable.

Be sure to allow enough time for the unexpected and hopefully, we will look back at this moment in history as being one of tremendous values and great rates. Good luck with your financing journey.