The last few months have seen a slow and steady decline in the number of single family home sales in both Nassau and Suffolk counties, with year-long lows in both areas. What’s causing the drop? It’s not just that inventory is low, which is the story in many other markets. In New York, we can’t ignore Wall Street, the pressure banks are under, and the reduction in bonuses that have a strong ripple effect across the area.
Another explanation for fewer closings is that more deals are falling apart at the last minute because the loans can’t be approved. Our team recently saw two deals fall apart in the late stages of underwriting when the lenders and underwriters uncovered previous loan defaults in the buyers’ records, and not enough time had passed since for them to be able to get another loan.
“Unfortunately, they worked with lenders who were from out of town, or whom we didn’t know,” said JD Pulice, Redfin Long Island agent. “The lenders had pre-approved the buyers for the loans, but it wasn’t until the final underwriting stages that they uncovered these blips on the buyers’ records.”
Choice of lender is the buyer’s to make, and we make that choice a little easier by recommending local lenders who have proven track records of putting the customer first and getting the deal done every time. One of the reasons we recommend Redfin Certified lenders is that they do the due diligence of detailed loan background checks before writing a pre-approval letter to avoid surprises like this later on.
“I have a few clients now who have been 30 days late on a loan payment in the last 12 months and had no issue getting a loan, but any delinquency later than that, and they simply won’t get approved,” said Frank Virga of Quality Financial Solutions. “When I see anything more than a 30 day lateness in the last 12 to 24 months, I know there is going to be an issue when it gets to underwriting, and I will not pre-approve the client for a loan because I don’t want to waste their time or anyone else’s.”
Frank explained that there are some exceptions to the rule: For example, FHA loans allow for an explanation of derogatory credit with a chance that the loan can still be approved depending on the circumstances.
“I recently ran into a former client who mentioned that he was getting ready to short sell his house and buy a new one,” said Dawn Sullivan of All Shores Mortgage. “I caught him off-guard when I told him he’d have to wait at least two years after a short sale to get a new loan.”
Depending on loan type and down payment, the rules regarding how long you have to wait before getting a new loan after a short sale or foreclosure vary. Dawn broke them down for us:
|Loan Type||Wait Time After a Short Sale||Wait Time After a Foreclosure|
|Conventional||Minimum of two years if you put 20% down; Minimum of four years if you put less than 20% down. You must prove that that the short sale was a result of hardship and not financial mismanagement. Short sales due to financial mismanagement require seven years’ wait time.||Minimum of four years. You must prove that that the foreclosure was a result of hardship and not financial mismanagement. Foreclosures due to financial mismanagement require seven years’ wait time.|
|FHA||Two years. You don’t need to prove that the short sale was a result of hardship.||Three years. You don’t need to prove that the foreclosure was a result of hardship.|
|VA||Two years. You don’t need to prove that the short sale was a result of hardship.||Two years. You don’t need to prove that the foreclosure was a result of hardship.|
We encourage home-buyers to speak to a lender early in their home search process to get pre-approved for a loan. At this point, it’s important to make sure that your lender is doing all the necessary checks not only on your credit score, but also your borrowing history, not only to determine how much money you can borrow, but also to ensure that if you’ve had an issue in the past, enough time has passed for your loan to be approved today. While it’s often overlooked or rushed through, the pre-approval step is important in helping you set expectations for your home purchase and avoiding frustration down the road.
For a complete picture of the New York area market’s most recent stats and trends, download the Redfin Market Report here: Redfin-New-York-Real-Estate-Market-Report-March-2012.