Learning Center Article

Article: Dealing with Surprise at Home Closing

Here's my "bad closing" story: There I was, closing a loan, refinancing a sweet little property I picked up a few months earlier. My strategy on this property was to put a good tenant in rent-to-own, then re-finance the property. (I like this strategy!)

I'd spoken to my mortgage broker the night before. It looked like I was on track to pull out some $15,500 cash! She'd found me a company who would do ONE loan for 100% LTV (Loan-to-value ratio). Yipee!

It was a two loan set up, 80% first mortgage, 20% second. So, all looked good, I was signing away on two mortgages. We got everything signed and the closing agent disappeared (to get checks cut). When she came back, she handed me a check for $7179.00 and said "see you next time!"

Hmm! That's about half of what I THOUGHT I was getting. And, incidentally, about half of a year's tuition for my daughter's college. You can BET I told the closing agent to hold on, and I got my mortgage broker on the phone and started asking questions. She was surprised as I was. She'd call me back.

To make a long story short (determined after a flurry of phone activity) unbeknownst to any of the interested parties (me or my mortgage broker), the lender switched the loan program they had me in. In short, the 100% financing was only available for seasoned properties (those that have been owned for 12 months by the same owner).

Bottom line, the check I held in my hand was the proceeds from 90% LTV mortgage, take it or leave it! I had a decision to make and I didn't have much time to make it in. So I did!

But, it occurred to me that this could have been a a lot less disconcerting with some pre-thinking. Surprises at the closing table happen in this business. You could get there and the asking price be wrong. Your pay-off amount could be wrong, the insurance cost could double from what you were quoted. You name it, it could, and does, happen.

So, what do you do?

1

Remember, you can walk away.

If the deal is suddenly sour, you'd lose your binder (what you put down when you signed the sales contract), and perhaps an appraisal and loan application fee. But, if it keeps you out of a really bad deal, so what? Just chalk it up to the price of doing business.

1

Wait.

You can think about it. In most instances, you have until the end of the business day to close. Take it if you need it!

1

Have a written or mental checklist ready.

Things that would be on your checklist would include:

Your mortgage payoff amount (if you are re-financing). One digit off can mean big money to you!
Your annual tax amount (if you are escrowing). You don't want them collecting too much.
Annual insurance premium. Make sure the insurance premium didn't grow from your initial quote.
What you are supposed to pay your mortgage broker. Check the closing statement to make sure the number didn't change from what you were quoted.

1

Have the numbers of who to call if any of the above items need straightening out.

Call them if something doesn't seem just right. Pre-agree with yourself NOT to hesitate to ask questions of these members of your team. That's why you pay them!

1

Pre-agree to put the brakes on if something is wrong.

Be firm, but kind! It's usually not the closing agent's fault. Ask to see their closing instructions. (These are instructions sent t them by the lender on exactly what to collect at the closing table.)

1

Pre-agree what your limits are.

Decide ahead of time what your walk-away criteria is. For instance, if your insurance is $100 high, will you walk? NO! That's something you can straighten out later. Think through possible scenarios that would prompt you to make a decision, and make them ahead of time.

1

Re-evaluate.

After you have to make one of these decisions, keep asking questions after closing and evaluate your decision and modify your walk-away criteria if needed. Evaluate who you are doing business with. Constantly evaluate your methods. You'll get quite good at this in time!

So, what did I do? After calmly talking to my mortgage broker, I decided to take the 90% LTV proceeds. It was like being left at the alter. No wife, but a heck of a party!

My reasoning was that:
(1) 100% financing comes and goes with these lenders. If I waited another 6-8 months to re-finance this property, there's no guarantee that I'll get 100%.
(2) a bird in the hand is ALWAYS better than 2 on the wing.

What would you have done?

About the Author: Bruce W. Ford is a Editor of Rehab-Real-Estate.com and is an ACTIVE rehab real estate investor.

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