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Reasons Why Underwriting Holds Up Providing a Mortgage Commitment Letter

Every home-buyer in New Jersey or any other state for that matter who intends to obtain a mortgage loan to purchase a property with a mortgage needs to be familiar with the language in a standard real estate contract that relates to “Loan Conditions.” Most if not all standard real estate contracts have some type of mortgage contingency clause or escape clause that says in layman’s terms: you, the buyer, have a period of time to actively seek out and provide a mortgage commitment to show or solidify your intentions to purchase/acquire a property. 

Once you have obtained a mortgage prequalification/pre-approval, a signed contract between you and the seller, and a completed mortgage application, the lender works to issue a mortgage commitment. This is the legally binding contract between you and the lender. It’s the real real thing… your final approval. Generally though, the mortgage commitment is not negotiable and the commitment will un-doubtedly contain a number of conditions you must satisfy prior to closing. The lender does not and will not set up a closing until you satisfy any and all outstanding conditions.  The commitment letter will be dated and it will have an expiration date.

1. Proof of Employment and Income(at least 2 years)-If you have a break in your employment history or a change of employers, generally most lenders will allow you to make lateral changes within your industry. If you made a career change for example from a Teacher, a salaried position, to Realtor, a commission position, a lender may or may not proceed with the loan.  A lender typically collects your w-2s, 1099s, two of your most recent pay-stubs, bank statements and other proof of other assets. You can be asked for this during prequalification process and right before closing. Lenders will sometimes accept a contract between you and your employer to show future employment in cases where you made a non-lateral change.
2. Proof of Rental History-Paying cash for rent is not always a good idea for many reasons, but if you are a first time home buyer and you are coming from a rental, you may be asked to show your canceled rent checks to establish your payment history. Failure to do so could hold up your mortgage commitment and sometimes a lender will accept a letter from your landlord indicating your payment history, but not always.
3. A lender may ask you to explain recent large deposits, which tend to be amounts greater than $1000. If you are involved in a Church organization or a community organization where you receive gift money, you must report where the money is coming from albeit your group, parents, 401k, etc.
4. You must satisfy any and all outstanding judgements against you: this includes collections, unpaid child support, construction loans and other liens attached to you or your property. If you have a common name, you will be expected to sign an affidavit that says you are not subject to any outstanding judgements.
5. Check for blemishes in the title search or breaks in the chain of ownership. Break in the chain of ownership must be accounted for.
6. Satisfactory Survey
7. Depending on loan type a lender may require certain repairs to the property prior to closing.
8. Lender may ask you to provide a clear termite certificate indicating clear termite certification, repairs or treatment to home.
9. Appraisal does not support purchase price. In this case, you may have to renegotiate price with seller, make up difference or cancel contract.
10. Paid receipt for Hazard Insurance Policy in the amount of loan. or property value.
11. Flood Insurance, if necessary.
12. Proof of earnest money deposit, which is typically $1,000 and may be inclsive your additional deposits prior to closing.
13. Certificate of Occupancy from township-may or may not be collected by lender-but necessary to transfer title.  
14. If the property is a condo or townhouse with an association, a lender may ask for proof of insurance for common elements, reserved funds, number of owner to tenant occupied units, property management information, evidence the association is not subject to any lawsuits or pending litigation pending litigation both structural or non-structural such as environmental safety. In fact, there are a number of townhouse/condo conditions what we will post at a later time. Generally the Condo Association or Management Company must fill out a condo questionnaire to provide answers to a number of items that are important to a lender.
15. If you are buying a multifamily dwelling, you must register the building with the Department of Housing, which operates under the DCA (Department of Community Affairs) in NJ.The building must be registered as a multifamily dwelling, inspected by the state and reinspected in the case of violations. When the property has been registered, inspected and reinspected for compliance or repairs due to violations, the property will be issued what is more commonly referred to as a “green” card. The card itself is generally good for a period of 5 years. Here is a list of FAQs of the Bureau of Housing Inspection.   

 

Here is a condition that may not hold up a mortgage commitment but rather closing that you should be aware of:

In order for ownership of real property to be transferred, the subject property in which the buyer intends to buy and the owner intends to sell must be free and clear of any and all outstanding liens of which the old mortgage on the property is generally paid off at closing. In a short sale situation where the net proceeds of the sale are not enough to cover any or all of the liens attached to a property, a sale or closing might be held up if during the title an expected lien is uncovered such as an unpaid or outstanding water bill.    

Reasons Why Underwriting Holds Up Providing a Mortgage Commitment Letter

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Copyright Weichert, Realtors & NJRETODAY-By Realtor Angie Perez

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