Mortgage lenders also have a say by refusing to fund the buyer’s loan until deficiencies are corrected.
By Jeff Lazerson | firstname.lastname@example.org | MortgageGrader.com | September 12, 2021
Medi-spa nurse manager Tina Sherman struggled to find a larger Orange County home offering a downstairs bedroom to support her elderly mothers’ physical limitations.
Sherman’s challenge has been less about finding a fitting fortress than the incredible seller expectations once her written offers were submitted.
A very frustrated Sherman has walked away from eight separate property negotiations.
With so little inventory and plethora of buyers, sellers’ wanted more than just top dollar from Sherman. They said no to everything from paying for property repairs to fixing termite trouble. Forget the appraisal contingency, they’d say. We don’t care if it appraises or not.
The topper was asking Sherman to allow the sellers to stay free of charge for 60 days once the transaction closed. On a million-dollar home, that’s not chump change.
“I don’t know if I’m ever going to buy a house and help out my mom,” said Sherman.
Including Sherman, I’ve had three clients cancel escrow over the past two weeks because they are fed up with paying tippy-top dollar and then getting no love from the sellers for what they believe are necessary and reasonable requests. The last time I saw so many dropouts was about four years ago.
In addition, your lender also has a say in many of these contractual matters that you might be unilaterally agreeing to.
For example, cash buyers have a huge advantage over mortgage borrowers in terms of closing quickly. I have exactly one lender who will guarantee a 15-day closing or sooner. You may be at risk of losing the home and losing your earnest money deposit if you don’t perform within your agreed timelines.
Appraisers — or lack thereof – are the number-one obstacle to closing on time. Lenders sometimes struggle to find appraisers. It is becoming commonplace for appraisers to fail showing up, to miss report deadlines, to miss important details and to raise fees significantly. The need to correct and amend reports adds to appraisal delays.
If you agree to waive the appraisal contingency – meaning you agree to complete the purchase even if the property appraisal comes in lower than the contract price — you might have to beg, borrow or steal more to pay a bigger down payment than planned.
For example, you are putting 10% down on a $600,000 property, or $60,000. Let’s say the appraisal comes in at $575,000. You’d have to increase your down payment to $82,500 to make up the shortfall.
Other big issues are repairs and termite damage. The appraiser is obligated to report visual concerns like water stains on the ceiling or wood rot, requiring a licensed roofing or termite inspection.
If the contractor believes a new roof is required, you have two pickles. One is the cost of the repair and the other is the timing. Many lenders will not fund the loan until the home has been reroofed.
Other lenders may allow for something called an escrow holdback. This means you must place 1.5 times the amount of a contractor’s estimated cost to cure in escrow. The work must be done within 30 days of escrow closing.
The same would hold true of termite related repairs.
The big sleeper issue that sometimes comes back to bite you may be lender required homeowners association documents, including the HOA budget. Many property management companies are slow to respond. If the lender thinks the documents are unacceptable or the HOA cash reserves are inadequate, you might be in a bind if you waived your loan approval contingency.
Is this going to become a bigger game of contingency chicken and fix-it chicken between buyers or sellers? Or do sellers still have the upper hand?
Demand is as daunting as ever, giving sellers the advantage.
Inventory levels are still near record lows, according to Steven Thomas of Reports on Housing.
The current inventory of homes for sale in Los Angeles, Orange, Riverside and San Bernardino counties is just 16,988, compared with an average of 33,721 from 2017-2019.
The time it would take to sell all Southern California listings at today’s homebuying pace is 32 days, vs. 81 days two years ago, Reports on Housing figures show.
It’s always important to feel good about your decisions — especially something big like buying a home. If you are in the market to buy, stand your ground. Stay the course. Eventually, you will land something. The price will be high, but the terms will be fair.
More importantly, you don’t want to risk losing your hard-earned earnest money deposit to an unreasonable seller.
Freddie Mac rate news: The 30-year fixed rate averaged 2.88%, 1 basis point higher than last week. The 15-year fixed rate averaged 2.18%, also 1 basis point higher than last week.
The Mortgage Bankers Association reported a 1.9% decrease in mortgage application volume from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $6 less than this week’s payment of $2,273.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1 point cost: A 30-year FHA at 2.25%, a 15-year conventional at 1.875%, a 30-year conventional at 2.5%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.125%, a 30-year conventional high-balance at 2.69% and a 30-year fixed jumbo at 3%.
Eye catcher loan of the week: A 15-year fixed rate at 2.375% without cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or email@example.com. His website is www.mortgagegrader.com.
Jeff Lazerson - Mortgage Columnist since 2011