I have a buyer client, I'm going to call her Daphne. Daphne wants to have a handle on every single part of the house buying process. She wants to KNOW what's going to happen next so she can make plans. She phones frequently, saying things like, "I was wondering..." or "We were thinking..." and when I tell her what I know, which is often, "I don't know." she ponders. When I try to explain, because I don't like to not know, after all I'm getting paid here for what I know, when I explain as best I'm able, she responds with a "But why?" or "That doesn't make any sense."
And she's right. It doesn't make any sense. Underwriting, in preparing to turn her loan over to USDA, (oh yeah, it would be USDA and she's a real first time home buyer - as opposed to a first time in three years home buyer - and it's a foreclosure, which means we have a seller who won't fix every single little thing). Every stip (short for stipulation) has brought forth moans, from all of us. Underwriters seem to live for the sighs, sort of like Dementors in the Potter stories feed on emotion, but that's beside the point and patently untrue, although I do wonder if they spend weekends studying stips like - if there is any termite damage we'll need a structural letter from a licensed contractor. And really, in North Carolina, South Carolina, or Georgia is there any house over 15 that has NEVER had termite damage? We could have just ordered the structural letter along with the pest inspection, but we didn't know for sure they were going to ask for it, did we?
Of course we didn't. They don't ALWAYS ask for everything, however, given the terms, if there's any wood destroying damage on the pest inspection report and this will be required, they will probably ask for a structural letter. It's probably a good indicator to go ahead and plan for said structural letter while a contractor is under the house. "But why?"
"Um, do you really want to pay someone to go under the house again, when we know pretty surely that there will be termite damage?"
"But we don't KNOW, KNOW."
"We're in North Carolina it's a pretty sure bet."
"I was thinking we'd just wait until we know."
I agree, it is frustrating, it's frustrating for the mortgage officer, for the REALTOR®, and especially for the client who is looking to these experts for guidance. I mean to Janice, I mean Daphne, this is one of the biggest decisions of her life, she's investing every penny of her hard earned savings into this home. This home will provide not only a physical shelter, but a financial shelter that will protect her well into the future. It's important to her to know if she's going to make it down the river, and not worry that she's going to end up in the rocks, several hundred dollars poorer.
I get that. So, this morning I'm reading Seth Godin's Blog Post The River Guide and the Rapids and have an ah, ha moment, and it makes sense to me, because we don't know everything that's going to happen on the way to the closing table. We are steering the client's closing and we've got to weave and bob with the current. We don't know what underwriting is going to throw at us. Now we do know, or we should know where the big rocks lie. In an older home there will be stips for windows, there will be stips about heating, there will be stips about electrical, there will be stips about any safety issue. Which ones will be enforced?
USDA has some pretty stringent guidelines for the applicant. http://www.rurdev.usda.gov/SupportDocuments/CA-SFH-GRHUnderwritingGuide.pdf This is where a good mortgage broker carries a large part of the closing.
And USDA has some pretty stringent guidelines for the house
http://www.rurdev.usda.gov/id/5-0_existing.pdf which is optional. Optional?
And therein lies the rub. If you go by the letter of the law, and underwriting tries, really they do, then you're just not going to find a house that's suitable. You have a leak? They may require that it be fixed. You have a broken heat pump? They may require that it be fixed. You have a.... they may, on every single item, but they may not. And we can not KNOW with any certainty what they're going to pick up. One thing we know,is if the house is in bad condition it will NOT qualify and we will NOT let you apply for a USDA loan in the first place. If the house or the applicant do not qualify. All bets are OFF and we won't even start.
For a loan, the house AND the applicant must qualify and then, for the low interest rate, the 100% financing, assuming the house appraises, it's worth a shot.
But I can't know what underwriting is going to throw at us, just like I can't know about the low hanging branch ahead on the river where last night's storm toppled a tree. This month I heard about a loan that underwriting declined because the appraiser wouldn't write a letter stipulating that the land could not be subdivided - in Rutherford County any land joining a paved road can be subdivided, although you can't sell a part of your property if there's a lien against it without getting a release from the lien holder - so I miss the point of declining that loan. Poor buyers, paid for the appraisal, the home inspection, the survey... and then underwriting turns down the loan because the appraiser won't stipulate that the property can not be subdivided, which he can't because he's in Rutherford County!
Some of these stips don't make sense to me either. I had one loan denied at the eleventh hour because there was a building on the property. The previous owner used it for a home-based business and had a mailbox for it. Underwriting declared, after an appraisal, a home inspection, and a survey, three days before closing, that they wouldn't loan on the house because it had two addresses, because it wasn't a residence it was an investment property and they couldn't make a residential loan on an investment property. In this case all was not lost. My buyer had some connections and he pulled some strings and it came down from on high that this loan would be approved. And it was.
I could not have done that for him. There are things on the way to closing that the mortgage broker must do, that the appraiser must do, that the home inspector must do, that the title attorney must do, that the REALTOR® must do, and that the CLIENTS (buyer and seller) must do.
So what have we learned? What can we take from this? There are a few things we know for sure, there will be setbacks, and bumps and weird stips from underwriting, as sure as there will be blue skies, mold, and termites in North Carolina. And we should bear in mind as my writer friend, Brian Rathbone said on Facebook this week, "It's always darkest right before the dragon lands on you."
Relax, there are no dragons, it's a metaphor. Underwriting? Yeah, they're real, and we can expect them to toss us some stips on the way to closing, and they will, oh yes, they surely will. But you can relax, I've been running this boat for a while now, and I have friends who have been guiding this river for many, many years. If we encounter something strange I'll look into it. Trust that we'll steer around the large rocks, I know they will be in our path. When the unexpected arises, we'll steer around it. And if a hippo rises up out of the river and capsizes our boat? All bets are off. We'll make for shore with as much dignity as we can manage. After all, we didn't expect a hippo to rise out of the water in Rutherford County. Underwriting stips can be that surprising.
So why didn't I tell you all of this in the first place? River guides don't go over every rock, rill, eddy and rapid. They just cover the big rapids. Remember, we get paid to get you safely down the river, and even we won't know every difficulty until we get to it. That's why you want experienced guides. And in case you don't know - if we don't get you down the river safely - if we don't bring you to the closing table - we don't get paid. Not one red cent. We REALTORS® are self employed contractors, we work on 100% commission. So even if I wasn't an honest, loyal, hardworking, salesman, rest assured, I am invested in this transaction, I am committed, I am in the boat, too and I am always working for you.