Home Buying 101 -- Tales of Mortgage Horror

If anything is going to go wrong in a home purchase, it's probably going to have something to do with the loan. Borrowing money to buy property in today's environment is very, very complicated.

For your sake, for the sake of your realtor and the sake of everyone's sanity, please choose a good, reliable loan officer with a verifiable track record of successful closings and happy customers. In today's climate, a bad or lazy or irresponsible loan officer can make everybody's life miserable, and can delay a closing or even completely sink a deal.

A few true stories:

Loan officer is planning to come to closing. Loan officer doesn't show up. Neither does the money that is supposed to be wired to close the transaction. Buyer, seller and their respective families -- which include four sick children and a woman with Alzheimers, sit in a room at the title company for two hours, waiting. Finally everybody signs and leaves. Next day, loan still hasn't funded. I spend the morning on the phone with underwriters, etc., until it funds. Loan officer calls me that afternoon and says "I'm sorry I didn't return your call. I was at lunch." You don't get to go to lunch when your loan hasn't funded.

Buyer decides to work with a national mortgage company he's heard advertised on the radio. "Loan officer" doesn't return calls, is nearly impossible to reach. After weeks, loan officer realizes that buyer is receiving too many concessions from seller to approve the loan. She suggests that some of those concessions be passed from seller to buyer outside of closing and not be disclosed on the HUD-1 statement. This is loan fraud. Loan officer seems very surprised when I point this little fact out to her. Buyer winds up having to switch lenders two weeks before close. I have several heart failures.

Buyer chooses to work with out-of-state mortgage company his employer recommends. This lender's out-of-state loan processor, unfamiliar with Colorado real estate practice, estimates closing costs over $10,000 higher than they will actually be. Buyer calls his loan officer to express his displeasure. Loan officer proceeds to essentially disappear, not returning my calls nor buyer's calls. Buyer is upset, wants to back out of the deal. Closing cost mess is straightened out with the help of my friend, the good lender who isn't even involved in the transaction, and buyer elects to continue. Then, two days before closing, I receive a call from the processor telling me that underwriting has denied the loan because they don't like the appraisal. The appraisal, mind you, valued the property at the purchase price. Plus, the buyer is putting 20% down, so lender is only risking 80% of appraised purchase price. But it turns out that the loan officer, who has long since disappeared, didn't choose an appraiser who was approved by the lender. Buyer calls an officer of the mortgage company. A heated discussion ensues, culminating in the mortgage officer shouting an expletive (that rhymes with "duck stew") at the buyer and then hanging up on him. Buyer's options are to either pay several hundred dollars to have the property appraised by an approved appraiser and hope the results are good, or switch to a new lender at a higher interest rate (rates have risen since he locked the original loan). Either option will delay close by one to two weeks. Buyer once again thinks he wants to back out. That afternoon, I get a call saying mortgage has been approved after all because officer who hung up on buyer felt guilty and pled buyer's case to underwriting. But buyer isn't sure he wants to go through with it. Buyer finally decides to proceed. Closing is delayed two additional days. The day of closing, loan funds aren't showing up at title company. We discover that this is because lender is waiting for some random form that Colorado doesn't require. Loan finally funds. I check in to cardiac ICU unit.

I'm not the only real estate agent with stories like this. Fortunately, Colorado now requires loan officers to be licensed with the state. So if somebody screws up, they can be reported. This will hopefully, over time, sift out the riff-raff.

So how do you find a reliable loan officer? Start by asking your real estate agent. He or she has sat at enough closing tables to know who's reliable and who isn't. Most agents have lenders they deal with regularly. Those loan officers are probably going to go the extra mile for you, because they want those agents to keep referring business to them.

Other avenues? Ask your friends, family, co-workers what lenders they've worked with, and how it went. If they say "Okay, I guess," move on. Look for the one who says "She was fantastic!"

Whatever you do, if you live in a state that requires loan officers to be licensed, be sure to work with a licensed loan officer. Not "well, I'm not licensed, but the paperwork will show an agent who is." Work directly with someone who is licensed in your state. And, preferably, someone who actually works in your state. Laws vary widely from state to state. Unfamiliarity with your local laws and real estate customs can be deadly for your deal.