Behind-the-scenes players in key roles
By Lew Sichelman, United Feature Syndicate
Homebuyers will deal with any number of professionals in order to make their transactions work.
Apart from the seller's real estate agent, and perhaps an agent of their own, buyers also will work with a lender and maybe even a builder if they are purchasing new construction. If they decide to have the house examined for hidden defects, they'll deal with an independent home inspector.
But there is a whole cadre of people who work mostly behind the scenes. Although you'll probably never meet most of them, they perform important tasks. Here's a look at who they are and what they do.
1. Processor. Once the bank receives your application from the loan officer or mortgage broker with whom you are working directly, a processor takes over.
This person's job is to gather necessary documents the lender needs to make a decision, review them to be certain all the lines have been filled out and the boxes checked, and verify what you say is true. He or she will order a credit report and appraisal, and verify your employment, income, bank accounts and any other financial information you provided.
Your real estate agent might also employ a back-office processor to make sure the various inspections have been ordered and the paperwork has been filed with his counterpart in the lender's back office.
2. Appraiser. You pay for the services of this valuation expert, but your lender hires this person to determine what the property you intend to purchase is worth.
In most instances, an object's worth is judged to be what an informed buyer is willing to pay in an arm's-length transaction. But when obtaining a home loan, the house stands as collateral for the hundreds of thousands of dollars the bank is giving you to buy the place. So the bank wants to know what the house would fetch if it had to repossess the place and put it back on the market.
Simplistically, an appraisal is a snapshot in time of the value of the house based largely on what similar properties in the vicinity have recently sold for. Appraisers don't randomly assign values. Rather, they look for similar houses within a certain radius of the subject property that sold within the most recent past, make adjustments for such differences as a finished basement or extra bedroom and bath, and then offer their professional opinion of the home's value.
While you may never see the appraiser, you are entitled by law to a copy of her valuation; you paid for it. If you or your agent believes the appraiser might have missed more comparable properties, you have every right to ask her to reconsider or ask the lender to order a second valuation.
3. Underwriter. Once your loan package is complete and verified, it is shipped to the individual who will decide whether you are worth the risk. Years ago, underwriting was done by hand, one loan at a time. Then the computer took over, spitting out the final say-so in a matter of seconds. Now, the process is usually a combination of human and machine decision-making.
The underwriter will analyze your credit history and credit score to make sure it meets the lender's requirements. He'll also calculate your housing and debt-to-income ratios to determine if you have the financial wherewithal to make the monthly payments, and evaluate your savings to make sure that you have enough money for the down payment, closing costs and a cushion of cash-on-hand should you run into financial difficulty.
4. Surveyor. If the underwriter gives your application his blessing, a survey of the property is ordered. A surveyor will review land records and create a plat showing the property's boundary lines and where the house sits on the parcel of land. His survey also will contain information about any easements that are on the property, including those required for power, telephone and sewage.
Such utility easements are normal, but your lender will want to make sure that no one from a neighboring property has legal access to your property or has the right to go through it to get to a street or highway. Typically, such easements lower the value of the property.
The surveyor also will look for any encroachments that are over the boundary line — one way or the other — between your property and that of your neighbors.
5. Termite inspector. Inspections for wood-destroying insects are required for loans on almost all dwellings except condominiums.
The inspector will look for evidence of termites or termite damage as well as that of carpenter bees, carpenter ants and beetles. If any problems are discovered, the lender won't approve the loan unless they are corrected. Usually, remediation is the seller's responsibility.
6. Mortgage insurer. If you're making a less-than-20-percent down payment, the bank will require insurance to protect it against the possibility that you won't make your payments as promised.
You pay for the coverage, but the lender picks the insurer, not you. Still, lenders usually work with several different companies, so it may be worthwhile to research rates so you can request that the lender use the least expensive alternative. Realize, though, that each mortgage insurer has its own credit rules.
7. Title search. If all things are a go, your last stop will be at the closing table, where you will sit down with a settlement or escrow agent who will ask you to go over and sign a stack of legal papers.
Before you arrive, someone in the agent's office will have conducted a search of the land records to make sure there are no defects. If there are, the title company will work to have them corrected.
But because there is a possibility of hidden defects not reflected in the records — a missing heir, for example, or a forged signature — the lender will require that you also purchase lender's title insurance.
Here, there is no choice of insurers. But you will be offered the option of also buying your own policy, which will protect you against fraud, mistakes or undisclosed ownership, and defend you — as opposed to the lender — against any lawsuit attacking your interest in the property.
8. Lawyers. The closing agent will explain each document to you, but she should not dispense legal advice. Her job is to make certain that the lender's instructions are being followed, so she works on behalf of the lender and not either party to the transaction. If you want or need legal representation, you should hire your own attorney.
9. Notary. Sometimes the title attorney or escrow agent may also be the person who notarizes the documents you sign at the closing table. This is to attest that you are who you say you are and actually signed the papers. But it also protects you against the possibility that someone might try to forge your signature.
In most places where an attorney is not required by law to be present at the settlement, a third-party witness known as a notary signing agent is dispatched for the sole purpose of identifying you and obtaining your signature.