Buyers – Using A Mortgage Broker May Leave You Dead In The Water

If you are thinking about using a mortgage broker for financing or have already been approved through a mortgage broker, you may dead in the water and without a new home come settlement day. And to add insult to injury, you will most likely be in default and may lose your earnest money deposit.

First of all…what is a mortgage broker? A mortgage broker is a company that does not lend their own money. Instead, they outsource the loan to direct lenders who actually have the money and fund the loan. Examples of direct lenders are Wells Fargo, First Horizon, National City, SunTrust and CitiMortgage.

The part of the direct lender that deals with mortgage brokers, gives final loan approval and funds the loan is called the wholesale division.

So why may using a mortgage broker leave you dead in the water come settlement day? Because more and more direct lenders are closing their wholesale divisions and not going through with funding broker's loans even if the loans have already been approved and are supposed to close in the near future.

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Warning To Sellers: Having A Ratified Contract Does Not Mean You’ll Actually Sell Your House

If you’re a home seller in Loudoun County who has a ratified contract on their property, you’re probably elated. Buyers are getting harder and harder to come by, let alone getting one to buy your particular house. But don’t rejoice quite yet. Just because you have a ratified contract, even if all the contingencies are removed, don’t be shocked if your prospective buyer(s) walks away from the deal even if it means possibly losing their earnest money deposit. 

In fact, according to a recent survey of mortgage brokers, one-third of home buyers who had signed a purchase agreement (aka ratified contract) in August ended up cancelling. At the top of the list of why – mortgage related problems.

To help avoid this happening to you, make sure you do your homework prior to accepting an offer. For starters, you and/or your real estate agent should check out these 3 things:

1. Does the loan officer they’re using work for a retailer, wholesaler or correspondent lender? Make sure that the lender is a retailer (has money and underwriters within and does not have to fund the loan through an outside source).
2. Is the letter a lender letter of just a pre-approval letter? Make sure that it’s a lender letter meaning that the buyers have filled out the necessary paperwork, credit and assets/liabilities have actually been verified and that final loan approval is contingent upon a ratified contract, title work, appraisal and final underwriting.
3. Is the buyer’s lender letter dated within the last 7 days? Conditions change very quickly in today’s financial world so the buyer may or may not still be eligible for the same rate and/or loan program as before.

Though these three things will help, they are not a guarantee that the buyer won’t walk-away. Sometimes, it’s just a crap shoot. Do what you can to cover yourself, throw in a little luck and you should be able to breathe a sigh of relief once settlement is over.

Further Reading:

One-Third Of Home Buyers Fail To Close In August – Even Higher Percentage For Subprime Buyers – real/diaBlog