Any “Animal House” fans out there?
If so, do you remember a scene near the end of the movie where Kevin Bacon, as a ROTC student patrol guard, tries to calm the rioting parade mob by imploring them to “Stay Calm! All is Well”? In the movie the advice didn’t work so well; Bacon’s character was quickly trampled flat by the frenzied crowd.
But when it comes time to close on a mortgage loan for a new home or on a refinancing loan for your current property, Bacon’s advice can do wonders for your sanity. Much like his, my advice for closings is to stay calm, expect problems, be prepared and don’t worry too much!
Unfortunately, I speak from some bad experiences.
Applying and obtaining final approval for mortgage financing, and then closing the real estate transaction at settlement, can be plagued with myriad problems. Unnecessary complications may stem from the actions and inactions of any of the three key parties to the process: the loan company, the company handling the settlement and the loan applicants — you.
Having been through the process many times with my own real estate projects, my experiences at closing have been all over the map. Some closings were so quicksilver smooth they seemed complete before I had a chance to remove my jacket. Other closings, however, did not go so well. They were dominated by confusion, contention, delays and blame games between the parties, as well as panicked last-minute phone calls to obtain carelessly overlooked or incorrect information.
Equally important, the amounts of money changing hands at the table can cause big headaches. Perhaps the most important element of the process for the borrower at settlement is the amount of money he or she needs to “bring to the table” (or will receive in credits). This factor can create sleepless nights in and of itself. Take a just-completed refinance project of mine, for example.
When I applied and was approved for a 5.250 percent investment property refinance loan, the mortgage company kicked in a $3,000 credit to help cover my closing costs. The lender told me that I’d still need to bring about $1,300 to the table at closing, which I found perfectly acceptable. The loan took nearly three months to close, and during that time I regularly badgered the loan officer for a better deal. Two weeks before closing, I got one: a lowered rate (5.125 percent) and a bigger credit from the lender that required I bring only $300 to the table. I was more than pleased.
But a week before closing the story changed again, and not for the better. Once the loan was approved to close and the lender and the title attorney got together to crunch the numbers, it turned out I needed to bring $1,900 to the table. What!!? How could things have changed so dramatically, seemingly for no good reason?
Well, there were good reasons, they assured me. The lender and the title attorney went through the HUD-1 step by step and in a semi-complicated explanation clarified why the total closing costs were different from the earlier estimates. I understood that the revised figures were correct. What I didn’t understand was why I previously had been quoted two lower bring-to-table figures. Luckily, I had the extra money I needed for closing. Not all borrowers do.
(There also were a series of inconvenient, last-minute requests by the lender to move up the settlement date, but that’s a post for another day.)
In the end, I tried to find my inner happy place and focus on the fact that my new mortgage still would be much better for me than my old one. Contentment was readily achieved because I remembered that mortgage loan closings always experience problems of some sort. That’s why I try to follow just a couple of simple rules for closings:
1. Stay in touch with all parties to the transaction – regularly – and make sure they stay in touch with each other. This can take a lot of work on your part, but find out, for example, if all the parties are getting all the information they need, and on time. Are all the parties responding to requests made by the other parties?
2. Use reputable service providers. Some loan and settlement professionals are much better to work with than others. If you’re in need or referrals, talk to local industry professionals or friends you trust to ask them about their experiences. Choosing the wrong companies can spell doom!
3. Rely on the information and advice you are given by the various parties, but be your own strong advocate and verify what you’re being told. When all is said and done, you’re the one with the most at stake in the process.
4. Remember that you have hired “professionals” to provide you a specialized service, and make sure that service is satisfactory to you. If you feel that the work is not being handled properly, share your views with them and remember that many other firms out there are anxious to get your business.
5. Finally, realize that many types of problems usually occur in settlements. Try to be patient, realistic and communicative, and don’t worry too much.