Refinance vs. Purchase Transactions

Written By: Frankie Lacy, Op-Ed Writer

2013 saw the end of the mini-refinance boom as interest rates increased in late summer to early fall. As a result, it is important for mortgage processors and underwriters to reacclimatize themselves with executing purchase transactions. For those who have been underwriting and processing refinances for some time, there are some key differences to identify.

First, purchase transactions are prioritized differently than refinances. Refinances are generally processed first in, first out. Purchase transactions are processed according to the contract expiration date. The goal is to close on or before the sales contract expires. This is to avoid costly fees charged to the buyer or a buyer losing out on a home due to the seller re-listing.

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In addition, purchases tend to be more intense due to the involvement of realtors and the highly charged nature of the transaction. Seller’s are intent on closing in a timely manner, usually because they need the equity to purchase a new home of their own. Buyers are anxious to get settled into their new homes. Realtors are fully commissioned, self-employed business people who depend on a handful of transactions for a full year’s earnings. Loan officers often depend on the satisfaction of realtors for referral business. In other words, all involved parties are highly motivated to see the transaction close as quickly and smoothly as possible.

Underwriters should be prepared for “push-back” on conditions and frequent requests for conditions to be moved to “at closing”. Fully executed purchase agreement addendums and HUD-1 statements to prove net equity funds are often “at close” conditions. In addition, both processors and underwriters should be prepared to accommodate rush requests throughout the month, versus having them clustered toward the end of the month.

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Purchase agreements must be analyzed carefully. Underwriters must insure they have a full understanding of the terms of purchase including the purchase price, contract expiration date, earnest money deposit amount, seller concessions, and what (if any) personal property is included in the sale. Furthermore, underwriters must condition the file out properly if the transaction includes the sale of multiple parcels. A thorough review of agency, insurer, and investor guidelines is required to insure the closing of saleable loans.

Finally, verification that earnest money deposit (EMD) funds have been received by the selling agent is required. Usually the borrower will supply a copy of the check, but we must also verify the check cleared. In addition, be sure to get an updated bank balance after the EMD has cleared for the most accurate funds to close figure.

About The Author

Frankie Lacy - As an op-ed writer, Ms. Frankie Lacy is a 15+ year mortgage industry veteran with extensive conventional mortgage underwriting experience. Topics of Frankie's expertise include: Fannie Mae, Freddie Mac, USDA Rural Housing, underwriting to investor overlays, self-employed borrowers, personal and business tax return analysis, rental income, condos/co-ops/PUDs, and more. Frankie is a Davenport University graduate with a degree in Business Administration.


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