A recent study found that mortgage loan application denials were at their lowest level nationally since the financial crisis. Although the study did not include any New Jersey cities, the reasons for the borrower/buyer denials are a reminder of how a real estate attorney can help in any real estate transaction.
National Denial Rates
The study, based on federal data, found that nationally about 1 out of every 10 mortgage applications are denied. Florida cities had the highest rate of mortgage denials, with Houston, Detroit and New York coming in the top 10.
The lowest rate of denials—meaning that people were approved for home loans more often—included Minneapolis, Salt Lake City, and Kansas City.
Debt to Income Problems
What may be most interesting to potential home buyers, are the reasons for the denials. Many are reasons that are preventable.
The most common reason for mortgage denials was debt to income ratio. This is not something that a borrower can control; a borrower makes whatever he or she makes, and the property costs whatever it costs. Thankfully, the days of falsifying or failing to document income just to get mortgages are past us, as are the ramifications that followed such fast and loose lending policies.
Value of Property Problems
Another reason for denials was the failure of the property to appraise at the selling/contracted price. Sometimes, property just is not worth what the seller is selling the home for, or what the borrower is trying to borrow. The bank will usually rely upon its own appraiser to value the property the buyer is trying to purchase.
Sometimes a low appraisal can be remedied or corrected (or avoided altogether). In some cases, sellers fail to make needed and necessary repairs to property before inspections, which would raise the value of the property.
Bank appraisers may overlook assets that would give property a higher appraisal, such as proximity to schools or major roads, or upgrades to a home’s infrastructure.
If property does appraise under value, a real estate attorney can help you negotiate with the seller, to see if the seller will lower the sale price to be more in line with the bank’s evaluation.
Income Verification and Application Problems
Verifying information is vital, but many real estate attorneys do not work with their clients to verify the income that the buyers do have. Many applications are denied not because the borrower does not have income, but because he or she fails to verify income. In some cases, the study found that borrower applications were simply incomplete. A good real estate attorney can tell you in advance what kind of documentation you will need, so that you do not blow a deadline to get mortgage funding.
Some people do not have sufficient credit before applying, but many do things that can hurt their credit that could be avoided. For example, it is not a good idea to buy a car, or do anything to extend your credit immediately before applying for a loan.
Get help at every stage of the buying or selling process. Contact our real estate attorneys at The Law Office of Agnes Rybar LLC to help you with your real estate closing.