- - Thursday, December 15, 2011

Q. I am in the military and scheduled to be transferred to North Carolina early next year. We own a home in Silver Spring that has about $250,000 in equity. Our plan is to sell our current residence and use the proceeds to purchase a new home.

Can you give me some tips as to how I might avoid the circumstance of entering into a contract only to have my buyer’s mortgage application collapse at the 11th hour? I have heard that the new mortgage restrictions are making contracts fall apart because buyers can’t get their mortgage approved despite being “pre-approved.”

I don’t want to insist on all-cash contracts because that would eliminate a lot of potential buyers.

A. You have described a seller’s nightmare. It might play out like this: A buyer offers you full price for your home with 95 percent financing and settlement within 60 days. You accept the offer, creating a ratified contract, which takes your home off the market.

Meanwhile, you head to North Carolina and find your dream house. You make an offer, which is accepted, and now you find yourself on opposite ends of two ratified contracts. You arrange “coinciding settlements,” which allow the sale of your home to occur hours before the purchase of the North Carolina home. The proceeds from the sale would be wired directly to the settlement attorney’s office in North Carolina.

But, five days before the scheduled settlement date, your buyers are informed by their lender that the loan has been denied. The scheduled settlement date comes and goes. Luckily, your purchase contract was contingent upon the sale of the Maryland house. The seller returns your earnest-money deposit but sells your dream house to another party who put in a backup offer.

You now have to start from scratch. You have lost the home you wanted in North Carolina, and your Maryland house must be put back on the market. Indeed, it’s an ugly situation.

Luckily, I don’t think such a scenario happens very often, but there are some simple steps you may want to take to make sure it doesn’t happen to you.

At the time of contract negotiation, carefully read the prospective buyer’s mortgage preapproval letter. How specific is it regarding the details of the preapproval? Have the buyer’s income and assets been verified? Has his credit been checked?

If you have any doubts about the competency of the loan officer, call him and ask direct questions. A good loan officer knows the difference between a rock-solid applicant and an “iffy” applicant.

If I have a loan applicant seeking a mortgage to purchase a home, and his qualifications, for whatever reason, are pushing the limit of standard guidelines, I don’t issue a “prequalification” letter. Instead, I speak with the seller or his agent and say that the borrower is “tight” in qualifying. I then rush through a credit underwriting for a full loan disposition, subject to a property appraisal. This can take as little as two days. If the application is approved, an approval letter can be issued to the seller.

In the vast majority of cases, however, rock-solid applicants need only to be submitted to the automated underwriting systems offered by mortgage giants Fannie Mae and Freddie Mac. This can be done in minutes and should satisfy the concerns of any reasonable seller.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.

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