How Repair Negotiations Can Mess Up Closing

The mortgage lender is involved in most pieces of the home buying process but, thankfully, we get to stay out of the repair negotiations.  As long as the repairs are not required by the appraiser, we let the buyer, seller and Realtors work out what needs done between themselves.

There are some ways that the repair negotiations can keep the bank from closing on time, though.  Let's review the two most common tripwires and how to avoid them.

Post Closing Work

Realtors often ask if repair work can be done post closing.  In short, the answer is no.  This is just putting unnecessary risk in play for the buyer.  What if the trades person doesn't do the work as agreed?  What if they do the work but the cost ends up being more than planned?  No one wants to be dealing with these issues after the closing is done. 

While I know it sometimes happens where the trades person is paid at closing even though the work isn't done and the lender is none the wiser, it's a bad habit for Realtors to get into.  To protect your buyer's experience and your future referrals, get the work done before closing.

Seller Concessions

Many times the buyer and seller decide to let the buyer handle repairs in the future with the seller compensating them for that cost at closing with additional seller concessions.  This is problematic on three fronts:

1. If there already are seller concessions in place, the additional amount may put total concessions above the maximum allowed.  This comes up the most with conventional loans.  Total seller concessions for conventional financing can't exceed 3% of the price, regardless of the reasoning for it. 
2. The additional concession may cause the bank to need to re-disclose.  A seller concession is factored into the APR calculation.  If the APR is more than 0.125% more or less because of the change, the lender has to re-disclose and give the buyer at least three days to consider the new figures before closing.  That means the lender can't find out about this when the HUD is being drawn up.  It's too late then to re-disclose and close on time.
3. Lastly, when additional concessions are added, the appraisal will need changed and re-approved by the lender.  Appraisers have to report any concessions in their report.  This updated report may take a couple of days to get back and another day or two to be reviewed. Again, if the lender learns about this additional concession days before closing, closing isn't going to happen as planned.

 Negotiating repairs is just one of the hundreds of important services that Realtors provide for their clients.  Lenders like me are grateful to our Realtor partners for doing it well and keeping the sale together when inspection issues arise.  If our Realtor partners can take the additional step of getting the work done before closing and informing the lender early of any changes to concessions, we'll be able to do our part better also to get the purchase closed on time. 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Why Your FHA Buyer's Maximum Price Just Dropped

Let's face it, not everyone was taught how to handle debt well in their youth.  Because of that, many of us get to our adult years with several collections scattered across our credit reports.

Those collections typically got in the way of someone using Conventional financing for a home purchase but FHA would normally give them a break on it.  If the overall credit picture was ok, FHA would ignore the collections and let the buyer purchase a home as if they didn't even exist.

NOT ANYMORE

Effective October 15, FHA is going to start requiring lenders to assume a monthly payment on those collections.  If non-medical collections total more than $2,000 combined, the buyer will have to pay them off, set up a payment plan with the creditor, or be held liable for a monthly payment equal to 5% of the balance as part of their approval.

What does this mean to you?

It means that the maximum price for your FHA buyer with open collections just dropped.  If they have $2,000 in open non-medical collections, they will now qualify for $100 less in monthly mortgage payments.  That's about a $14,000 drop in maximum home price at today's interest rate.  For every $1,000 more they have in collections, that maximum price would drop around $7,000.

So what should you do?

If you have active buyers who are using FHA financing, forward this to them.  Have them ask their lender if this is going to impact them.  If their lender doesn't know what they're talking about, get them to a lender who does, and feel free to make that lender me!  I'm always happy to help your buyers make informed financing decisions. 




Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

How Is The Shutdown Going To Impact My Home Buyers?

No one is happy about this government shutdown.  Well, maybe some federal employees who are now having a bonus vacation, but the rest of society seems to be annoyed at best. 

For those of us in the real estate business, though, this can be more than a minor annoyance.  This can impact our income and the home buying experience of our clients.  While this is a highly fluid situation and the impacted functions will likely change as it goes on, here are the key effects on our industry at this stage:

• FHA Buyers - HUD should not be significantly impacted as long as the shutdown is brief.  Lenders will still be able to get FHA case numbers and run loans through the approval system.  The key question to ask the lender for your FHA buyers is - "Do you underwrite the FHA loan yourself or do you send it to FHA to underwrite?".  Most FHA lenders underwrite themselves but not all.  FHA will have only a limited staff on hand (4% currently) so if they will be underwriting the file, expect a significant delay.
• VA Buyers - VA financing should be largely un-impacted.  Lenders should still be able to originate VA loans and get Certificates of Eligibility online.
• USDA Buyers -  God have mercy on the USDA buyer right now.  USDA in Indiana is already ridiculously behind.  Their usual 30 day review turn-time has ballooned up to 60 days in the last two months, making most USDA loans take up to 90 days to close.  During this shutdown, USDA's loan function is shut down so no new loans or guarantees will be made.  If you have a USDA buyer in contract, start talking about extensions now.
• Conventional Buyers - No significant impact is expected here.  Whew!

There are certain government functions impacted by the shutdown that will impact all buyers, regardless of loan type.   They are summarized below:

• IRS - lenders send tax transcript verification requests to the IRS for most buyers these days.  During the shutdown, the IRS will not be processing these requests.  If the shutdown is fairly short, this should have little impact, assuming your lender is the type who requests these verifications early on in the process.  HOWEVER - if your buyer is working with a lender who does this at the end of the process, it could create a problem.  You may want to have them ask their bank when they process this verification form (called a 4506-T, if you want to speak mortgageeze to them).
• Social Security Administration - most lenders also verify a home buyer's social security numbers with the SSA.  This will have the same impact as the IRS verification.  If this is a short shutdown and the lender processes these early in the process, it should have no impact.  If the shutdown is long or the lender processes these at the end, it could be a problem.
• Federal Reserve - thankfully, the federal reserve and reserve banks are not funded through the appropriations process so money wiring should be un-impacted.

So what should you do about this?  Truthfully, there is little we can actually DO.  We can COMMUNICATE though.  If we're worried about it, imagine how are buyers in contact are feeling?  Share this information with them.  Have them talk to their lender to further clarify.  If they're still looking for a  home or lender, connect them with someone who can educate and comfort them (hint hint - me).  I'd be honored to give them the information to make this a low-stress experience for them still, despite the shutdown. 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.