Getting in Condition(s)
Have you heard of the story where a guy applies for a mortgage, he was approved then the lender asked for more information up until a few days of closing? Why do lenders do that, anyway? Why don’t lenders simply ask the borrower for what they need upfront and forget all the nonsense about collecting bits of documentation nearly every day?
That’s a fair question, and a common one. In fact, when lenders document a file, they verify the information provided on the loan application then vet the additional information as it comes in. Sometimes when a lender reviews an item related to the loan approval, it brings up still more questions. Those questions are called “conditions.”
Experienced loan officers know what to collect from borrowers the moment a loan application is reviewed. From collecting up to date paycheck stubs or copies of last year’s tax returns, the veteran loan officer strives to collect all the information needed from the borrower at the very beginning and not have to return asking for still more data. When a loan officer returns for more information, it slows the loan approval process. Borrowers as well as long officers hate that.
Sometimes it can’t be avoided. How so?
For example, a borrower completes a loan application and in the Income section he puts $8,000 per month. The loan officer begins to document the loan application but the borrower doesn’t have his most recent pay check stubs and will hand them over at his next pay period. The loan officer proceeds with the loan and soon receives the initial loan approval; with the “condition” that the borrower provide a pay-stub reflecting $8,000 per month in income.
10 days later the loan officer receives the anticipated pay stubs. However, the income on the pay stub indicates $7,500 per month in gross income, not $8,000. The lender is required to document the loan application is it is submitted but now the loan must be corrected to reflect the $7,500 figure. The loan is then resubmitted for an approval.
Lenders routinely approve loans based upon certain assumptions when the loan application was initially submitted. However, if documentation later provided indicates something counter with what appears on the loan application, the lender will proceed with the approval “on condition” that the discrepancy be corrected later.
A lender can also issue a condition based upon information provided by third parties. For example, an appraisal is received but the properties listed as comparable sales are too old for the report. The lender can still issue an approval on the condition that an additional comparable sale is added to the appraisal.
There are two primary types of conditions:
- Prior to closing
- Prior to funding
Prior to closing conditions are items that need to be cleared up before the loan is ultimately approved and loan papers ordered. For instance, if the borrower doesn’t have enough money in a bank account to close, the loan can still be approved on the condition that sufficient funds are verified. However, loan papers won’t be ordered until the condition is satisfied.
Prior to funding conditions are typically less important items such as getting an updated pay stub or fixing a typographical error on a loan application.
The key with conditions is you will likely encounter one or two as your loan moves through the approval process. When your lender needs a little help to get a condition waived, get on it as soon as you can to make sure you loan is closed on time with plenty of room to spare.
Full and accurate disclosure is the secret to a smooth mortgage transaction, your Loan Officer can give you guidance up front if he/she can see the whole picture.