6 reasons your mortgage application might be denied or delayed that have nothing to do with you!
Even if you are a well-qualified New York City buyer with good credit and money in the bank, you can have trouble getting a mortgage for an apartment if there are issues with the building. With interest rates rising, even a short delay can be problematic.
So even before you sign a contract, make sure you get reassurances from your lender that they will be able to approve the loan. Here are the issues you want to avoid:
1. The temporary certificate of occupancy has expired -
Problems with the certificate of occupancy (C of O) can throw off your mortgage process. Banks need at least a temporary certificate of occupancy (TCO) to issue financing. These certificates establish the legal use of the building and need to match the physical space. If the building doesn't have a final C of O, you need to establish the status of the TCO. TCOs typically lapse on a quarterly basis.
2. The building doesn't have the necessary reserve fund -
A bank will want to see that the apartment building is in good financial health. If not, they could refuse to lend to you. Fannie Mae, one of the government-backed entities that buys loans from banks, issued new guidance that became effective this year stating lenders need to see that a building has 10 percent of its budget in reserve for repairs, maintenance, and special assessments.
3. There are too many sublets in the building -
Lenders don't want to see too many sublets or non-owner occupied apartments in the building in which you plan to buy.
4. Your apartment is appraised for less than the sale price -
In some cases, an appraisal comes in at a valuation that doesn't allow a buyer to get the loan amount stated in the contract. If you have a mortgage contingency, you can cancel and get your deposit back or try to renegotiate the price.
"In a non-contingent scenario, in the event of an under appraisal, the buyer has to make up the differential in cash," says Michael Feldman, a partner at the law firm Romer Debbas.
5. There are liens, issues with title, or open permits
- Occasionally during a lien search it may be discovered that the unit has liens and if these can not be resolved a deal may not be able to close," says Brittney Baldwin, vice president and loan officer at National Cooperative Bank (and a Brick Underground sponsor). You can't close on a co-op or condo apartment where there is an open tax lien—a situation that could come about if the seller has unpaid municipal charges, including maintenance and real estate taxes. While a lien issue can generally be resolved, it could delay your closing.
6. The building's insurance has lapsed -
Banks want to see if the building's master insurance policy conforms to Fannie Mae and Freddy Mac guidelines.
Mortgages are a big topic right now and we will continue to keep you informed. We are experiencing a slight slowdown in the Manhattan market. We believe a combination of rising mortgage rates, inflation, a volatile stock market, war in Ukraine and the start of summer are all contributing factors. Buyers are absolutely still out there, and would prefer to lock in a rate now vs in the fall. Summer in the city is a special time to unwind and enjoy.