FHA 203k Loan Program Slows Loan Approval Process for First-Time Home Buyer
Q: As a first-time home buyer, I read and read and read before deciding on the lender to do my 203k loan. (Yes, I read both of your books.)
I decided to work with one of what you call the “big box lenders” because I had two people at the bank that appeared to be working on my loan and they called me back quickly when I asked questions.
What I did not understand was that it would be sent to “processing” where other people would take over the work on my loan.
After I got all my initial bids completed, my loan went to “processing.” My initial approval was done on an estimated amount for the loan, but the actual bids came back $15,000 less than we had been estimating. Unfortunately, the good faith estimate was done on the high estimate. I immediately requested a good faith estimate on the actual loan amount.
Nearly a month later, I am still waiting to find out what my closing costs will be. I am also waiting for any “processing” to be done.
I call and email almost every day. I am told they are sorry and that they will work to do better. They say they are paying to expedite my appraisal. All I know is that I do not even have an estimate from the bank of when the loan might close.
(Very fortunately, the selling bank in this foreclosure gave me a closing date a ways out, and said they would move it earlier once everything was in place to close.)
Is there anything else I can do to push the mortgage bank to get their act together?
A: Wow. You’d think that a bank that had a real live customer would be working double-time to make sure the loan closes. And, maybe they are.
FHA loans typically require more paperwork than regular loans. And, 203k loans are just about the most complicated FHA loans you can get. Everything has to be verified. That’s why they take longer to complete. What probably happened is when you changed your numbers, everything in the loan package had to be changed, so your loan may have gone back to the bottom of the pile.
Can you speak to a supervisor? What about the boss’ boss? Can you contact the executive office of the bank’s headquarters and ask for help from the VP of operations? It’s possible that a quick word from the executive suite and your loan will suddenly move to the top of the pile. At least, you won’t blow your rate lock.
The best thing you can do is call every day or every other day and make sure the loan officer has what he or she needs to correctly process the loan. If nothing else, just seeing your phone number on the caller ID on a very regular basis should be enough to get your loan papers revised and get you through to the closing table.
As the housing boom rose, banks hired thousands of people to help with loan processing, but as the boom went to bust, those same banks shed thousands of jobs. As interest rates have dropped, banks have found themselves caught short handed and unable to work through the paper load of all the files that have come in for refinancings and purchases.
You should know that it is normal for a person to complete quite a bit of paper work only to find out that the documentation has been sent to a black hole at the bank for further review. In that black hole, the lender comes back with requests for additional documentation. At times, the requests are repeated until the lender is satisfied that the paperwork complies with all of the loan guidelines that the bank has and has to abide by. If your loan gets to that point, the lender should give you a letter telling you that your loan is approved and that you can proceed to buy the home.
Make sure you read any of the fine print on that approval letter. It’s better for you to find out that there are additional requirements for you upfront than find out at the closing or even later on that your lender will require you to do something or require you not to do something in order to get the money to complete the work on the home you are buying.