Pre-Qualified? No Guarantee You Will Close

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Almost sounds like we're talking about health insurance. Remember the phrase "verification of benefits is no guarantee of health coverage?" Well, now mortgage companies appear to have taken a cue from insurers, saying mortgage pre-qualification is no guarantee of getting a loan and closing on your home.

Yet countless real estate agents in this credit-crunched economy still advise clients to get pre-approved before they even start to look for a home.

That was the exact advice that the Rumph family of Austin, Texas, followed. Moving to the Lone Star State from Alaska, they found a darling 1,200-square-foot stone home in Leander, a fast-growing suburb north of Austin. And they were hoping to close by the end of April to take advantage of the government's tax credit.

All systems were go until five days before closing, when the loan underwriters said "no deal" because of Brendan's temporary employment.
"It really would have been good information to have $2,000 ago," Jodi Rumph told Austin's KVUE-TV.

The Rumphs were pre-qualified for a VA mortgage of about $111,000 by a Wells Fargo mortgage broker. They were up front about the fact that Brendon Rumph works a freelance job as an office temp. They put $2,000 earnest money down on 2602 Tumlinson in Fort Leander. Meantime, the seller of the 25-year-old home cleared out his tenants and made repairs.

Now the Rumphs are out $2,000, along with losing a good real estate deal and a tax credit. The seller, Nate Brooks, is out about $4,000 in repairs and rent, since he has no tenants. The Rumphs are now waiting to see if the publicity generated by KVUE's story on their situation might lead to another mortgage company stepping up, or if they will have to pass on this home and just wait for another opportunity.

This is an excellent example of how credit is choking off real estate transactions even in a state with a relatively healthy market.

I asked Brendon Rumph if he thought his inability to obtain a mortgage had anything to do with the shenanigans of Wall Street, like those hedge bets against the market. Indirectly, yes, he said. Lenders are being extremely cautious about lending these days. "There seems to be a disconnect in what the brokers tell you and what the underwriters are looking for," he said. "The underwriters are working and looking out for the investors."

A Dallas family recently got a contract from a buyer who was also pre-qualified, but for a jumbo loan on an $800,000 home. The buyer used a familiar mortgage company, one affiliated with both the sellers' and buyers' brokers -- smooth sailing, they thought. The transaction was going so well that the sellers, who were downsizing, held a huge garage sale. They sold off all the furnishings but their beds -- including pots and pans.

The day before closing they learned the underwriters at the mortgage company were concerned over the buyers' debt ratios. The deal was off, and their home went back on the market without a stick of furniture.

"We are seeing some real jockeying," said the sellers' agent, who chooses to remain anonymous until the deal is complete. "I think that when it comes to these newly minted jumbos, we are the freshmen class until the brokers and the underwriters get together."

What can buyers do?

Agents advise that you ...
  • Set your financing contingency deadline earlier, and add a deadline of a week or two before the closing date by which time the lender's underwriting requirements must be met.
  • Never move out (or sell off furnishings) prior to funding. Use a seller's temporary lease to give you three days after funding to vacate the property, sell furnishings, etc.
  • And use a lender that your agent is familiar with. Of course, in this case, both realtors were very familiar with the mortgage company and are furiously working to revive the deal.
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