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Tightening credit market changing how homes are sold

House Hunting

House Hunting

December 29, 2008|By DIANE HYMER

Changes in the housing market can change the nature of home-sale transactions. For instance, before the boom in the home-sale market that began in the second half of the 1990s, the California Association of Realtors (CAR) purchase agreement used by most California Realtors included a clause in which the seller warranted the condition of the property.

The boom market changed that. The version of the CAR purchase contract most widely used during the fast-paced market that subsided in 2006 did not include a seller warranty. Instead, the buyer agreed to purchase the property in its present condition subject to the buyer's inspection rights. Market conditions changed the home-sale transaction in a very significant way.

Similar changes are taking place in the current market. The most obvious change is that it's harder to get financing. Not only is there a lack of liquidity, there are fewer lenders in the mortgage business and the qualification requirements have tightened considerably.

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Lenders now fully qualify buyers for mortgages, which takes more time than it took to grant a stated-income mortgage, a popular type of home loan during the boom years. With a stated-income mortgage, the borrowers didn't have to verify the income that they stated on their mortgage application. Now, most lenders require complete verification of employment, income, assets and credit history.

Full qualification and underwriting approval can take up to three weeks or more, depending on the lender, the mortgage amount and your financial situation. Many lenders now require two appraisals rather than one, particularly on loan amounts over $1 million.

With some lenders it can take as long as seven to nine days after the first appraisal is sent to underwriting for the second appraisal to be done.

This means that your loan contingency could expire before you have complete approval.

Some lenders work faster than others. Find out before you make an offer how long the entire loan approval process will take. Tailor your loan contingency time period accordingly. Otherwise, you might have to ask the seller for an extension.

HOUSE HUNTING TIP: It's always best to meet the contingency deadlines stated in the contract. You may want to ask the seller for a concession at some point, perhaps to cover the cost of a defect discovered during inspections. A seller who's happy with your performance is more likely to be cooperative than one who is mad or anxious because you have not met your deadlines.

With mortgage approval taking longer, short closings are virtually impossible unless you're paying all cash. In most cases, it's difficult to close a home-purchase transaction in less than 30 to 40 days from contract acceptance. During the boom market when financing was easy to obtain, many buyers closed within a couple of weeks. Check with your lender to find out a realistic time frame for closing before making an offer.

There is far more negotiating now than there was a couple of years ago. More buyers are asking for sellers to pay to correct inspection-related defects. Some buyers require that the work actually be done before closing. This can pose a problem. It's often hard to line up contractors at the last minute to do work within a short time frame.

For this reason, it's a good idea for sellers to have pre-sale inspections done before they put their homes on the market. If there are defects discovered that will be red flags to a buyer, consider having the work done before your home goes on the market.

THE CLOSING: Not only will this minimize your chance of a delayed or failed transaction, your home will be more salable.

Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

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