Most Common Problems Obtaining A Home Loan

Welcome and thanks for reading this post. We asked our Berkshire Hathaway’s office manager what were the biggest problems home buyers and sellers have to overcome to complete a successful sale. Among the most common were problems obtaining a home loan.

The common problems obtaining a home loan in Santa Barbara are different for each and every client. The requirements to obtain a loan vary by loan and property type. Single family home loans differ from condos. The loan amount changes what loan vehicles can be used too.

FYI: It is very important to talk to a lender at the very beginning of the home buying process if you are not paying cash. You’ll want to know what kind and amount you qualify. It is simply where the process starts when buying a home, condo, land or investment property.

Below is a list of some of the most common problems obtaining a mortgage in Santa Barbara. We will be talking about “underwriters” quite a bit in this article.  Underwriters are the people who dig through all the documents you supply to get your loan. They are also the ones who approve or deny loans.

Out Of State Lenders: One of the biggest issues we see is when people try to get a loan through a national or on-line lender. Many out of those lenders simply don’t know the additional requirements our City and State impose. Thus, we encourage our home buyers to work with a local firm that is familiar with the complexities inherent to home buying in the Santa Barbara area.

Income: As you can imagine, the borrower’s verifiable income is a big roadblock for some. Most areas of the country simply don’t have our prices. A good lender will help to get the right documents together for your application. Since your income will be verified, accuracy is vital.

Credit History and Scores: The lender’s underwriting team checks a borrower’s credit history. If they find a glitch, they will get back to the borrower to get an explanation. It’s important for a home buyer to get back with them ASAP so any issues can be handled. FYI: The underwriters have no judgment, their job is to cross all the “T’s” and dot all the “I’s” so your loan can be approved.

Debt to Income Ratio: Part of the loan approval process is to look at your income and expenses. The underwriter will look at the numbers and come up with a number that reflects how much you make and how much you spend in the form of a ratio. Lenders require the ratio to be within certain guidelines based on the type of mortgage you are going after.

Employment History: It should come as no surprise that the lender will be verifying your employment. In general, they like to see you’ve been at your job for a minimum of two years or at least two years in the same industry. Sometimes a letter of explanation can give them some wiggle room and other times it is a stopping point.

Downpayment Funds Seasoned or Sourced: The lender will want to verify you have the funds on hand for the down payment. Some buyers are getting “gifts” from their parents or using money they’ve saved but not in the bank.  They will need to verify the origin of your down payment money and in some cases, it may need to be put into the bank for a period of time to “season” it. This can delay your loan so should be handled before making an offer.

Low Appraisal: When you find the right home and are under contract, the lender will send out an appraiser to determine if the home’s value matches or exceeds the price you’ve offered. If the appraised value is less than the contracted sales price, it affects how much they will loan you. There are work-a-rounds that a seasoned real estate agent can help execute. This is simply one of the many reasons working with a full-time active Realtor like Joe Parker or Garrett McCaw is important. Experience does matter.

Thoughts From A Local Santa Barbara Lender:

We asked Justin Dees at Home Services Lending to add some of his own thoughts. The Santa Barbara Group has closed a lot of sales with Justin and respects his knowledge and skills.

Credit scores can create a lot of confusion. People think the credit score they get online or from their credit card company is valid. They are surprised when a lender pulls their score and it isn’t the same. This is one of the many reasons to get pre-approved so we can help solve any issues before they start home shopping.

Another area that causes problems was touched on above. Many borrowers are getting down payment funds from a relative or the sale of personal property. This is not an issue, but creating a “money trail” for the funds is necessary. 

We hope this home loan information has been helpful. If you have questions or would like to start finding the right place, please know we are here to help you. We’ve helped hundreds of people buy their dream home and would like to do the same for you.

Garrett McCaw & Joe Parker
The Santa Barbara Group
Berkshire Hathaway Home Services CA
Joe – 805-886-5735 – Garrett – 805-252-2335