There used to be a time when the process of acquiring houses for sale in Irvine, CA, carried more risks than today, including risks greater than the housing market suddenly turning against either the buyer or seller during a purchase transaction. Losing earnest deposit payments used to be a common issue when mortgage lenders could not process loan applications fast enough. Thankfully, the calamitous crash of the real estate and mortgage markets in 2008 left plenty of lessons for everyone to learn.
Thanks to the enactment of the Consumer Financial Protection Bureau (CFPB), many of the issues associated with the financing of purchase transactions have been ironed out in recent years. Still, it is not unusual to run into some difficulties related to the home financing process. The good news is that the CFPB has ordered Irvine, CA, real estate and mortgage professionals to come up with solutions to these issues whenever feasible.
Debt-to-Income Ratio Is Too High
Ever since the American economy started showing clear signs of recovery in 2012, conventional mortgage lenders have tightened their underwriting standards, particularly regarding credit scores and DTI ratios. Some banks will only consider mortgage applicants with DTI ratios lower than 31 percent. When this happens, the best approach is to look for another broker or lender. In some cases, FHA loans that are manually underwritten will consider DTI ratios as high as 50 percent as long as there are mitigating factors conducive to a loan approval.
Seller Insists Upon a Contract for Deed
Institutional sellers who only offer properties on a contract for deed basis tend to draft contracts that absorb all equity. A 2018 study conducted by the University of Georgia has found that most contracts for deed situations these days are unreasonable for prospective buyers who would be better off as renters. The best approach is to decline these types of home financing.
Closing Figures Skyrocket
Under the new rules and guidelines of mortgage lending, the figures quoted on the Good Faith Estimate (GFE) cannot increase too much. The loan APR and discount points cannot deviate by more than 0.08 percent. Moreover, the appraisal, abstract, and title curative fees cannot increase by more than 10 percent. By law, the lender must present a new GFE and provide an explanation for the deviation. In this case, the borrower has three days to review and accept the terms or else take the original GFE to a competitor who can match the offer.
Appraisal Comes in Lower Than Expected
Nothing derails mortgage processing faster than an appraisal that comes in substantially lower than expected. When this happens, the bank will briefly offer the buyer the option of coming up with extra cash before putting the application on ice. The best course of action in this case is to appeal the appraisal, which is not uncommon in an active housing market such as Irvine. Prior to 2008, it was not unusual to see unethically high appraisals across Southern California. The opposite is being observed these days because appraisers have become ultra-conservative. If the lender does not budge on appeal, a second appraisal can be ordered.
If you’re interested in houses, condos, and townhomes for sale, Irvine, CA, is a wonderful place to live. Make sure to connect with a reliable local real estate agent who can help you through the home buying process. Reach out to OC Residential today at 714-454-6304.