Mortgage Commitments: A Broker Explains Why Banks Rush You into Them
A co-op board recently wrote me to say it had received a commitment letter for a new underlying mortgage — with an expiration date just five days after it was sent. Worse, the board didn't receive it until two days after that letter was written — leaving just three days to review it, discuss it with an attorney and schedule a meeting to vote on it. Since the lender took more than three months to give a commitment, why, all of a sudden, the big rush?
Having served as the president of my own co-op's board of directors, I can understand the frustration. Refinancing an underlying mortgage is the most important decision a board will make during its tenure. Three days hardly seems enough time to review and vote on such a critical issue, especially after waiting so long to get it.
On the other hand, having been a banker for several years, I can understand things from the lender's viewpoint as well. By the time it issues a commitment letter, the lender will have done much work, and doesn't want that effort to be in vain because the borrower takes the commitment and shops it around with other lenders. The lender assumes you have already done your comparison shopping and are ready to move forward. In the lender's mind, five days is more than enough time for an organized and serious borrower to review, sign and return a commitment.
So, who's right? Both are. Let's start with the lender. Loan officers have multiple loan requests on their desks and will work on whichever ones have submitted all the required information. If your application package is poorly organized or incomplete, or the loan officer has questions that go unanswered for more than a day or so, it might get put aside.
The faster you give loan officers
everything they need,
the faster you'll get a commitment.
The fact a loan took more than three months to get approved tells me it had a problem or two that required more detailed analysis, or that the board either didn't submit a complete application package or didn't respond promptly to the lender's questions. The faster you give loan officers everything they need, the faster you'll get a commitment.
Once a commitment is issued, the loan officer is anxious to turn the file over to the lender's attorney and move toward a closing. In his or her mind, the business terms have been discussed and agreed upon, and so delays in accepting the commitment, or protracted negotiations over the terms, cause the loan officer to wonder whether the loan should have issued it in the first place.
Moreover, moving quickly can save you thousands of dollars. Most lenders give borrowers a fairly wide window within which to lock the interest rate. However, lenders rarely let borrowers lock their rate until they have accepted their commitment and put up a rate-lock deposit. Nothing is more frustrating than not being able to lock your interest rate as the market moves up. Therefore, the sooner that you can be in a position to lock a rate and take advantage of market drops, the better off you'll be. And to do that, you almost always have to have returned an accepted commitment.
Ask for an Extension
But, you say, your attorney is away on vacation and two board members are out of town on business, so there is absolutely no way that you can return the commitment before they get back. Fine. Ask for an extension. Almost any lender will extend the deadline to accept and return your commitment.
However, the length of that extension, as well as the willingness of the lender to continue to hold the interest rate spread, often will depend on your level of cooperation up until that point. This is when your organization and prompt responses throughout the loan approval process can pay big dividends.
Finally, never accept a commitment without talking to your attorney. Their valuable input is essential and can save you both money and headaches down the road.
That said, you should make sure your attorney has experience closing underlying mortgage loans. This is a specialized form of loan that not all attorneys thoroughly understand. That sometimes results in the attorney requesting changes to the commitment that the lender will not accept. If you or your attorney persist in such requests, your loan could get repriced or, worse, rejected. So consider retaining one of the many attorneys who are very familiar with underlying mortgages, know most of the lenders and can review your commitment and close your new loan quickly.
Adapted from Habitat January 2009. For the complete article and more, join our Archive >>