Getting Pre-qualified for a Colorado Mortgage
LONG before you have an accepted Conract to Buy, you (the buyer) have talked to a lender or lenders and started the Colorado mortgage process by becoming pre-qualified. It’s a quick and relatively painless process whereby you give the lender permission to pull your credit history and some basic info about your income, assets and debts. Pre-qualification can be done over the phone and it’s pretty quick. It is not a commitment to give you a loan, but more of an idea that you should qualify for a loan to a $X amount. This allows you to determine if the monthly payment at this amount is comfortable, or if we should dial back/up the price cap on the properties you want to look at.
So you did it! You found the house/condo/townhouse/land that floats your boat and you submitted an offer to buy it. The seller, liking your price and terms and agreed to the sale. You have a mutually executed contract to buy, in hand.
Next stop… Lender. Your Realtor will send the contract and counter proposal, if there is one, to the lender and thus starts the ball rolling. It’s time to make a full-blown loan application.
Colorado Mortgage Loan Application
Your lender will now ask you for all manner of documentation. Tax returns, bank statements, proof you deposited the earnest money, pay stubs and so much more. They will have you sign the application paperwork and a series of disclosures that are timely. Get on it! There is no time to waste. The law mandates some of this timing and the slower you are to sign, the longer the next step will take to get rolling. The good news is you can do most of it on your smart phone once set up with the lender appropriately.
Next is Processing. You will be contacted by the Processor to complete more paperwork and for some truly odd requests! This person is the link between you and the anonymous Underwriter that ultimately determines whether you will get the loan. It is not the Processors fault that the underwriter wants some very personal information or explanations about the choices you make in your life, so even though it’s sometimes difficult, you need to restrain yourself and not yell at the Processor. 🙂
At this time you might also be asked for documentation regarding liens and loans you currently have, a divorce and/or child support payments, letter from your accountant pertaining to something about your business, explanations about large deposits or withdrawals in the last 60 days, letters explaining monetary gifts, profit and loss statements for your business and all sorts of things that I couldn’t even dream up.
In my case, since I was moving from Boulder to Longmont and that was clearly difficult to comprehend, I was asked for a Letter of Explanation (LOE). My letter outlined such things as I do a fair amount of work in Longmont, I have a lot of friends in Longmont, I fly out of Longmont’s Vance Brand Airport and my boyfriend lives in Longmont so I already spend a great deal of time here. I also mentioned that since my boyfriend and I were moving in together, we needed a bigger place than my Boulder house (at an affordable “non-Boulder” price) and besides that, I had shared the Boulder house with my Ex-husband, so wanted a more neutral space from which to take the next step in this relationship.
Here is where it gets weird…
Even though I was the only one buying the new house and I had proof of funds and proof of income, the Underwriter needed something more. At the end of the day, my boyfriend was listed as my fiancee and I was asked to remove all mention of my Ex from the LOE! Welcome to the 1950’s!
In truth, I can see why some “additional evidence” of where I was going to be living and why, might have been requested. You see, I was buying a second house and applying for a primary residence loan. If this house had been called an investment property and I had no intention of actually living there right after closing, the interest rate would have been 0.5 -0.75% higher. The Underwriter wanted to be sure I was not calling it primary residence, then using it for investment only (which is loan fraud, FYI). But really… Why did I have to be engaged? And need to ex-sponge the Ex-husband from my history?
And it just gets better. Next was the appraisal.
Colorado Mortgage Loan Appraisal
Im a Realtor, but I’m going to be VERY honest about how I feel about the appraisal process. It’s a stacked deck!
The appraiser is hired by the lender. He is supposed to visit the property, compare it to the comparable sold listings, adjust for differences and the market (which is still going up) and come up with a value to give to the lender. If the value is around the same as the purchase price, then the lender is happy to loan you money and secure the loan with a lien against the property. Sounds simple right? Realtors value properties everyday, in order to educate our buyers and sellers about offer prices and listing prices.
First off, the appraiser gets a copy of the contract to buy the property in question. Yes, he already knows what someone is willing to pay for it AND what the lender is hoping the appraisal will come in at.
Second, the appraiser calls the Realtors involved in the sale of similar properties in the recent past and asks them all sorts of questions that help him skip some homework of his own. Mostly about the condition of the property, but also about multiple offers, the days on market, interest the listing agent had in the house etc. In my situation he chose a property on a smaller lot with a back yard that was dirt. Just dirt. The MLS clearly said “seller is leaving the backyard for the buyer to finish”. No patio, no trees, no gardens or any sort of landscaping. DIRT! He chose 2 other properties very similar to mine. Then he adjusted each one accordingly… The dirt house was $10,000 lower than my contract price. The other 2 were close to the asking price of my property (not contract price).
OK, so why did I get a contract that was $9000 lower than asking price in this market? Because I’m a Realtor and I took a purchase price reduction instead of a commission paid by seller at closing. Ask me if the appraiser makes any adjustments for this? NO. Unbelievable since the net to the seller would have been $307,000 the seller if I had taken commission, but the contract to buy would have said $316,000. FYI, the net to the sellers of the comps would also have been about $9000 lower in reality.
Third, the appraiser visits the property in question and sees the condition of it as well as any red flags. The habitability stuff that I was talking about earlier. This is even more awful! The appraiser put in his report that once the roof was fixed and the counters were replaced in the kitchen, it would appraise OK. Ummm… You can imagine my surprise when the lender called me and asked about this. The roof, in fact, was just 6 years old. It had inspected well and didn’t need replacing – and wasn’t being replaced. The kitchen had not been renovated since the early 2000’s and the counters were also fine – and intact!
I wondered out loud to my lender if the appraiser had even gone to the right house (or had he sent his 6 year old to work that day)?
Then… The icing on the cake. The appraiser corrected his condition errors and sent in the value at $245,000. Say what?! Yes, the appraiser after all his due diligence (NOT) looked at the loan amount in the contract to buy and deemed the house to be valued at exactly the loan amount, rather than the purchase price! Any idiot with half a brain and a tiny bit of local market knowledge knows you can’t buy a house in decent condition in this neighborhood for close to $245,000. At what point were we expecting a red flag to go off in this guys mind? Never. Because he was not assessing value, he only intended on filling in the blanks on a form and writing down the appraised value as the contract price. And he was unsuccessful at hiding his incompetence at locating the purchase price in the contract that day.
In case you were not yet aware of how I really felt about this joke of an appraiser/appraisal, here it is… The guy didn’t do his job well. He sucked! He failed to read well, see well, communicate well. He got paid $575 for his “efforts” and I am of the opinion that was at least $500 too much. He caused undue stress, took longer than he needed and pocketed a hefty fee for a job poorly done.
But at the end of the day, the Underwriter needed his appraisal to commit to funding my loan and therefore, my only job was to keep quiet about it.
Shortly after receiving the appraisal my loan was approved. Having been to the underwriter and received his blessing/commitment I was free to schedule closing. I was going to buy another house!