Loan approval difficulties
Ask Phyllis: a blog series of frequently asked real estate questions. Email us here
Loan approval difficulties
Dear Phyllis,
I had been in escrow on a short sale for six months. My agent suggested that I apply for my loan, but wait to order the inspector and the appraiser until after the bank approves the sale. We completed the loan paperwork, and after five months, the bank approved the sale, but stated we had to close by January 25th. We ordered the appraisal. No problems on that front.
I thought we were ready to close, but then the lender had a problem with my being in a debt management program. He kept asking for more and more paperwork, and then he wanted to switch who was on the loan. My real estate agent could not get the short sale timeline extended. I think my agent took offense that I didn’t use his lender in the first place. I tried to switch to my agent’s lender, but we only had one week to close the deal. To make a long story short, we weren’t able to close on time, and the bank foreclosed on the house. I am still trying to figure out what went wrong.
Disgruntled home buyer
Dear Disgruntled,
Unfortunately, the problem is fairly simple: you chose the wrong lender. Your lender had your file for five months. During that time, he should have reviewed your income, credit, and down payment, and secured loan approval. He also should have thoroughly evaluated your credit history. There is no reasonable excuse for failing to do so after five months.
As for extending the short sale, your real estate agent was not responsible for that process. The short sale lender communicates with the seller, the seller’s Realtor, and the escrow. The lender does not communicate directly with buyers or their agents.
The loan process follows a series of required steps and deadlines. The lender must complete the loan file and obtain an appraisal. A third-party company typically handles the appraisal order. Closing a loan within one week is difficult because too many steps must occur first.
After the lender approves the loan, it sends the loan documents to escrow for your signature. Escrow returns the signed documents to the lender for final review. Once the lender completes that review, it funds the loan. The transaction is then recorded and closes on the next business day.
I recommend applying with a new lender, preferably one recommended by your real estate agent. Once you resolve the credit issues and obtain a preapproval letter, you can confidently resume your home-buying journey.
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