This prompted us to enlist the aid of loc

Our Lender Partners can be a great help, but YOU must also do YOUR part. You must take a proactive approach to ensure you protect yourself from unscrupulous or well meaning, but uneducated Buyers.

Our Lender Partners will help you gather this information and help protect you from unscrupulous or well meaning, but uneducated POTENTIAL Buyers.

Not only do you get a rebate if you and your Buyer use a Lender Partner for a loan, but our Lender Partners also give you help, information and protection you can't get with a regular lender.

The Buyer's choice of mortgage company & financing type directly affects

• how long it will take the sale to close
• the odds of loan approval
• YOUR bottom line. (different lenders and different loan types can change how much money you net at the same sales price)

You can't just say, "I don't care how you do it, I want $X at closing." You must take a proactive stance.

There are some people from whom you can't afford to take a contract. Others that you may have to insist upon further financial investigation or even a change in loan type or mortgage company before you can make a decision or even write a binding contract. Because many regular mortgage companies do not do a thorough EVALUATION of Buyers, only a simple PreQualification You must look out for yourself!

If a Buyer tells you they have been PreQualifed or PreApproved, since so many people use those terms interchangably, it probably means nothing. On the other hand if someone tells you they have been Evaluated they probably wouldn't even know that term unless they have been thru the process.

A lot of people feel they have to say they have been PreQualified or PreApproved to get into your home, but some people say it to entice you into entering in to a contract. Writing a contract without having the "preApproval" checked out can get you into a lot of trouble!

How do you tell the difference between a PQ/PreApproval and a real Pre Approval? Don't despair, you have help. For the privilege of being one of our Lender Partners these special Lenders are REQUIRED to give you more assistance than a normal mortgage company.

This brings up the question of what type of info must you & the Lender Partner know about the Buyer in order to determine the odds of the Buyer securing a loan approval and determine how long it will take to get their loan approved so you can even write a contract?

Hopefully they will already be working with a Lender Partner, but if not you must INSIST upon knowing:

1. has a loan application already been made?
2. has their loan package been subjected to computerized Underwriting?
3. what are the conditions of the AUL recommendation & can Buyer meet those conditions?
4. credit history and credit scores
5. stability factors
6. income stream
7. money in the bank
8. suitability of the loan type for their situation

Privacy laws require that the Buyer give their Mortgage company permission to give you this information. If the Buyer doesn't want to let you talk to their mortgage company you have to ask yourself "What are they trying to hide?"

Let's look at each element individually and see exactly

• what it is you are trying to determine by these questions,
• why they are so important and
• what you should look out for

1) Has a loan application already been made?
WITHOUT a loan application the financing process has not begun and no one has a clue how long it will take to process their loan close. There is no standard amount of time it takes to process and close a loan. Each loan is different as it is totally dependent upon the Buyer's situation. (How can you write a binding contract if you don't know what to put for a closing date?)

This is basic, but if a loan application has not been made and the Buyer's information hasn't been verified then a Buyer cannot have been Pre-Approved! So if someone tells you they have been preapproved, but they haven't made loan application yet you know they haven't been preapproved!

Without a loan application you don't really know how serious the Buyer is or if there are weaknesses that need to be addressed. (everyone has some)

WITH a loan application the investigative process has begun and weaknesses (and solutions to these problems) should be apparent. WITH a loan application you can close more quickly. A person who has made application is more confident they can secure financing. WITH a loan application you know the Buyer is serious about buying.

Without a full EVALUATION or an Loan Application how do you even know the Buyer can afford your house?

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2) Has their loan package been subjected to computerized Underwriting?
Computerized Underwriting otherwise known as Automated Underwriting (AUL) is ONE way a loan is looked at. Not every loan will benefit from AUL nor will every loan be submitted electronically, but it is a very good early warning system.

Automated Underwriting IS NOT AN APPROVAL OR REJECTION. AUL only recommends a situation be approved, looked at more carefully or turned down. A human must still look at the information and make the final determination.

For a full approval ALL INFORMATION IN THE LOAN APP MUST BE VERIFIED and then submitted to a human underwriter. If the verified information does not EXACTLY match the information as it was electronically submitted then AUL requires the loan to be resubmitted with potentially different recomendations. This is true even if the variance is as little as $1.

There is an old computer saying that applies here "Garbage in, Garbage out." In other words if erroneous info is submitted you will get an erroneous AUL recommendation. This means the work ethic of the mortgage company plays a big part in the veracity of the AUL findings.

Although there can be many loans with a positive AUL Finding that are turned down, if a human underwriter overrides an AUL recommendation and approves a loan the computer recommended be turned down there are major monetary liabilities that accrue to the Lender. This means it is very rare that a loan with an AUL recommendation to reject is approved.

On the other hand there are no monetary penalties if a loan with a favorable AUL recommendation is turned down when the final verified details are scrutinized by a human.

Realistically almost every file has to be resubmitted to AUL after processing because the information on the original loan app rarely matches the VERIFIED info - bank balances, credit balances and even income are usually different than initially stated. So you can see that an AUL determination, although it is good to have, really is nowhere near a certainty.

The fact that a Buyer has gone to the trouble to get an AUL determination says much about their willingness to buy. It also gives you a pretty good indication of the Buyer's creditworthiness AS SUBMITTED, but, of course, you have no idea if the information submitted is accurate. You need to have the mortgage company compare the information that has been VERIFIED since the loan app to see how closely it matches the original info BEFORE putting too much weight to a positive finding. If the VERIFIED info isn't matching extremely closely you may need to make sure the mortgage company reconfirms their recommendation by RESUBMITTING the loan with the updated info prior to signing a contract.

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3) What are the conditions of the AUL recommendation & can Buyer meet those conditions?
What if the loan was submitted showing $5,000 in the bank and all the Buyer has at time of contract writing or submission is $3,000?

What if the loan was submitted showing an income of $6,000 a month, but the human underwriter discovers they only have a salary of $3,000 and the rest of their income is an unstable commission, overtime or bonus?

What if the loan was submitted showing a credit card balance of $200, but between now and closing they buy a sofa and chair for their new home?

ANY DEVIATION requires the loan to be submitted with potentially different results! This means you need to know if it appears the Buyer will have difficulty meeting ANY of the submitted terms.

If they can't, the AUL information is not an indication of their ability to be approved for a loan.

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4) Credit history and credit scores
You will probably never actually see the written results of an AUL submission, BUT if you knew the borrower had 3 charge offs, a collection and 57 late payments you would know they will have a difficult time securing home financing. This, of course, would affect whether you wanted to tie your house up with them or wait for a better buyer.

WARNING!!! A CONTRACT IS NOT AUTOMATICALLY VOIDED IF THE BUYER CANNOT MEET THE TERMS! It is a process that can take days, weeks or months. Sometimes a bird in the hand may not be as good as 2 in the bush! With the wrong information you will always make the wrong decision!

As a general rule of thumb you want to see a credit score of 620 or greater AND no serious credit deficiencies. A person with a score under 620 can still get a loan, it just will be more difficult and probably at a higher interest rate.

Double check the contractual interest rate and downpayments written into the contract submitted to you. If the Buyer has credit deficiencies are the contractural terms at an above market rate and downpayment? Is the Buyer willing to accept harsher terms? If they aren't then your contract is useless as they can back out at any time &/or keep your house tied up for days, weeks, months or years.

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5) Stability factors
Stability factors are issues such as address, job and money stability and are more important than income & debt ratios.

Frequent job changes (more than 2 jobs in a 2 year period) indicate a high potential for changes in the future. This will make an underwriter look more carefully at the Buyer's credit history to make a determination of how they will make their house payments in the future when they are out of work again.

Has their money been saved due to judicious financial practices or was it a gift, borrowed or drug money?

The source of the money makes a big difference in how an underwriter will look at their situation. The basic premise is that if a Buyer is weak in one area, they'd better be extra strong in all other areas.

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6) Income stream
HOW a person is paid can be more important than HOW MUCH. Does the Borrower have what it takes to satisfactorily document the commission, overtime or bonus income?

Can they qualify if the inconsistent income can't be counted?

Are they new on their job?

Are they out of their probationary period?

Something we have seen a lot lately in the tech field - is people being hired temp-to-perm. They can be temp-to-perm for years. If so it can be difficult to count their income at all.

Is the Buyer self employed?

Can you use the last 2 years tax returns to prove up their income or do they charge everything off and need a No Income Verification loan which is only available at a higher interest rate &/or downpayment?

Once again are all these terms reflected in the financial terms filled in the contract?

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7) Money in the bank
Of course you need to know if they actually have enough money to close but did you realize that you also need to know WHERE the money came from and WHEN it will all be there!!

Their money must be verified as actually being in their bank account before you can get a final approval AND the money must be seasoned and sourced!
(seasoned and sourced means it must have been in a depository institution for a specified period of time and sourcing means it must have come from an acceptable source - drug money is not an acceptable source. Jail sentences make it very difficult to pay back your loan)

Saving the money is best, but a gift or loan can be OK on some loan types (and an automatic turn down on others), but even if it is allowed it weakens the Buyer's approval situation since it is proof they couldn't afford to live how they have been living AND save money. If that is the case will an underwriter feel comfortable the Buyer can make this new, higher house payment if they can't manage their money well at the old house payment?

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8) Suitability of the loan type for their situation
If any term of the contract cannot be met the Buyer can back out of the contract and you must return all their Earnest money.

Be sure to check the contract to see what type of downpayment, loan type and interest rate the contract is contingent upon. Make sure the contract terms are consistent with the Buyers situation.

For instance a self-employed person with credit issues will need higher interest rate and downpayment limitations than a person who is salaried, has been on the same job for 30 years, has perfect credit and has over a $30,000 in reserves.

Our Lender Partner call tell you if it is likely the POTENTIAL Buyer can secure the type of loan and terms listed on the contract.

Has the Buyer written a contract that is contingent upon them getting a low interest rate "A" loan when all they can be approved for is a high interest rate "B" loan?

Once again, a contract is not automatically voided if any of the terms cannot be met. Voiding a contract is a process than can take days, weeks, months or years. ALWAYS, ALWAYS insist all potential buyers be checked out by one of our Lender Partners PRIOR to actually signing a contract. By the terms of our agreement our Lender Partners are REQUIRED to perform this service for you.

For maximum protection insist your Buyer secure their financing from a Lending Partner and close with one of our Closing Partners, they are required to give more assistance than traditional Lenders and Title Companies.

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This information must be gathered BEFORE you sign a contract, AFTERWARDS IS TOO LATE! Contracts do not automatically become void which can cost you a lot of time (maybe months) & severely limit your ability to sell to another Buyer!

One thing you cannot determine until too late is how good a job the Mortgage company itself does. Why gamble? Our Lender Partners are PROVEN Performers and you get all or most of the Registry costs back if they furnish your Buyer's financing.

The Buyer's loan type also affects your bottom line.

There are 3 basic loan types.

Conventional
FHA
VA

Of those 3 types Conventional loans have the lowest Closing Costs to the Seller.

FHA costs the seller about $600 more than if the Buyer got a Conventional loan.

VA loans cost the Seller about $1200 more.

So you should always insist upon a Conventional loan, right? Not necessarily. FHA loans are very good for loans below $50,000 and for people with credit problems.

A veteran can move into your home for a cost of only $1.

You need to be open to whatever loan type will attract the most buyers for your home. In some neighborhoods you house won't sell unless you offer to accept an FHA or VA Buyer.

Your Lender Partner and Appraiser can better advise you of what is normal for your neighborhood. And you definitely want to insist that our Lender Partner do a thorough Evaluation (not just a PQ) of your Buyer BEFORE you accept a contract!!

You've got to realize that not every Home or Buyer can qualify for every financing type, downpayment or interest rate.

What would happen to your plans if a few days before closing your Buyers suddenly discovered they couldn't buy your home?

Would it make you lose the house you want to buy?
(You would probably also lose YOUR Earnest money!)

How would you feel about having to start over?

Could you find another home you like as well and how long would it take to find another buyer for yours?

Would you run into these same financing issues again?

Would the frustration and timing issues cause you to feel rushed and cause you to accept a lower offer than you ever would have considered in the beginning? (not an uncommon circumstance)

Is a last minute turndown a far fetched scenario? Not at all, national figures show that about 40% of all Buyers get ALMOST to closing before they discover they either cannot get the loan they want or can't get a loan at all.

This should scare you and make you realize the need to understand how a Buyer's Financing ability impacts your ability to sell. Selling a house is not as simple telling the Buyer "I don't care how you do it, I want $X for my home, give it to me."

Something many people don't realize is that there are actually 2 approvals necessary when financing a House sale. . . BOTH the Buyer & your property must be approved!

A Lender will not only look at the Borrowers ability & willingness to repay the loan, but the Lender will also look to see if they want to make a loan on your house. In other words could they quickly and easily sell your house if the Buyer didn't make their payments.

House and neighborhood financing limitations are discovered thru an APPRAISAL.

An appraisal needs to be done prior to placing your house on the market, but there are many more benefits to an early appraisal than just determining financing limitations. Another big benefit is planning - the appraisal also tells you the normal marketing times for homes like yours in your neighborhood.

See "Should I get an Appraisal" in the Selling Tips section. There is also information under "Appraisals" in the Financing section.

The Buyer's true financing limitations are discovered thru an EVALUATION or PREAPPROVAL - not thru a PQ!

Learn the differences in the next section.

A smart Buyer will have an EVALUATION done prior to looking at properties but if YOUR Buyer hasn't had an EVALUATION you definitely want to insist that one be done prior to accepting a contract. (afterwards is too late!)

 

 

This is so important I am going to say it again:

It is your right (nay your DUTY) to ask any questions or demand any information you want to know about the Buyers &/or their situation that might affect your decision to enter into a contract with them!