Preliminary loan approval can be revoked for several reasons
Q. We applied for a mortgage to buy a house about a month ago and were given the bank’s preliminary loan approval.
Last week, my employer notified me that our plant will close in 60 days. The lender apparently called my employer on Friday and found out about the planned layoffs so has now canceled the loan. Is this legal?
A. Yes, the bank acted legally.
All lenders have the right to contact a loan applicant’s employer, not only to verify the borrower’s salary but also to determine whether the applicant’s job with the company is secure. The bank was operating within its rights when it called your company, learned of the coming layoffs and canceled your pending mortgage.
Your case is a reminder that a lender’s preliminary loan approval is exactly that — preliminary. Lenders can revoke such an approval for a variety of reasons, including discovery of information that suggests that your ability to repay the loan might be jeopardized by an expected job loss.
If you can make a relatively large down payment — say, 25 percent or more of the home’s purchase price — you might be able to find a different lender who is willing to overlook the fact that your job is about to be eliminated. After all, a large down payment would provide the lender with plenty of room to foreclose and still get all of its money back if you fall behind on your mortgage payments because you are not able to find a new job quickly.
The bigger question is whether you should even buy a home now, considering the fact that you are about to lose your current job.
You might be able to justify going through with a purchase if your spouse earns a lot of money, or if you have plenty of cash in the bank to meet your new mortgage obligation while you look for another position. Otherwise, postpone your homebuying plans until your employment status stabilizes.
REAL ESTATE TRIVIA
With assets of about $3.6 trillion, the Industrial & Commercial Bank of China is the largest financial institution on Earth. JPMorgan Chase & Co., America’s largest lender, is merely half that size.
Q. My husband and I are getting divorced. If he deeds his half-interest in our home to me, will the bank be able to demand that the loan be paid off in a lump sum because my husband would no longer be on the title?
A. No, it cannot.
Under the federal Garn-St. Germain Depository Institutions Regulatory Act, lenders are prohibited from demanding a lump-sum payment for the outstanding balance of a mortgage simply because two joint-borrowers get divorced.
Of course, if you fail to make your future mortgage payments in a timely manner and the loan falls into default, your Garn-St. Germain rights will be lost, and the lender can demand that the entire loan be paid at once. But you will have nothing to worry about, assuming that you keep making the payments promptly.
Q. I bought my home about four years ago, and now I am refinancing.
I think the property has gone up about $50,000 in value since then. If the appraisal report shows that I am correct, will it automatically result in an increase in my annual property-tax bill?
A. No, your tax bill won’t automatically increase just because the bank’s appraisal might show that your home has gone up in value. Neither the lender nor the appraiser will share the results of the appraisal report with the county’s tax assessor.
You’re under no obligation to let the assessor know about the increase in value, either.
ABOUT LIVING TRUSTS David Myers’ booklet “Straight Talk About Living Trusts” explains how federal law now allows low- and moderateincome families benefit by creating a basic trust that only the wealthiest families could once afford.
For a copy, send $4 and a self-addressed, stamped envelope to D. Myers/Trust, P.O. Box 4405, Culver City CA 90231-4405. Net proceeds this month will be donated to the Disabled Americans Veterans, a charitable organization that helps U.S. vets and their families. Send questions to David Myers, P.O. Box 4405, Culver City, CA 90231-2960, and we’ll try to respond in a future column.