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Dream
Buyer or Nightmare?
Over
the sales period it is not uncommon for a Seller to have multiple
people who are interested in their home but have no hope of ever securing
a loan!
How
do you tell the Dream Buyer from the Nightmare?
This
is where a Buyer's Evaluation or PreApproval for a mortgage becomes
important.
To
be able to make loans in Texas ALL Mortgage Brokers must have
a physical location in Texas and be licensed by the State
of Texas!
There are NO EXCEPTIONS to this law!
BEFORE
you even consider negotiating a contract, make sure any Buyer
Loans, Evaluations or PreApprovals are done by a company licensed
to do business in the State of Texas. This is especially true
if your Buyer is using an Internet Lender.
ALL LENDING PARTNERS NAMB MEMBERS AND ARE LICENSED TO DO BUSINESS
IN THE STATE OF TEXAS.
In
the past there have been many, many complaints to the State
on Out of State Lenders and Online Mortgage companies using
Bait and Switch Tactics (quoting rates they cannot deliver)
and charging excessive points at closing. We have heard of
many Buyers who have gotten all the way to closing before
they discovered they could not close because either their
lender was not licensed in Texas or could not afford to close
because of all the extra costs.
Most
states have added license laws in an effort to protect consumers
from this type of unscrupulous lenders.
Just
because you saw an ad on TV/cable/satellite or the Internet
doesn't mean the people advertising are licensed to do business
in Texas. Most of these ads are national, not just regional.
As the Post Office says, "If it sounds too good to be
true, it probably is!"
To
protect yourself always ask for the Lender's license number
- especially if you can't visit their office (a physical
presence is ONE of the requirements to be licensed in Texas).
You can check to see if the Lender & Loan Officer is licensed
by going to http://www.tsld.state.tx.us
For
the most protection only do business with Lenders who are
also members of the:
National Association of Mortgage Brokers (NAMB)
Texas Association of Mortgage Brokers (TAMB)
and
your Local Association of Mortgage Brokers. For example (DFWAMB)
the Dallas/Ft. Worth Association of Mortgage Brokers
Association members must follow a strict code of ethics. They
also subscribe to NAMB's "Best Business Practices Guidelines"
plus there is a provision for Binding Arbitration above and
beyond the minimum legal limits set by the state.
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First
let me explain one very basic, but misunderstood fact. Once you have
a contract on your house the contract cannot be rescinded without
all parties consent. You can't just set aside the contract just because
the buyer doesn't qualify for a loan. This means you could be stuck
with an unqualified buyer for an unknown period of time.
So even if the Buyer is having trouble getting
financing or can't close by the closing date the contract is not automatically
null and void and you can't just sell your house to another party.
To
sell to someone else you must get the FIRST
Buyer to release their claim against your property or else there will
be a "cloud" on the title. With a cloud on the title you
cannot get a clear title policy which means you cannot sell your home
until it is cleared up. The courts take a dim view of selling your
home to 2 people.
It
may not seem fair and it sometimes doesn't make sense, but that's
the law! No matter how much you want it to be different there are
procedures that must be followed if you are to stay out of trouble.
If
both parties agree to rescind a contract it can be one of the simplest
things to happen, but if the Buyer doesn't want to release you or
wants their earnest money back, there are terms built into the contract
that must be followed to the letter to secure a release. I have seen
releases take years to secure.
The
best thing to do is to never take a contract from someone unless you
are ABSOLUTELY CERTAIN they
have the capacity to close!
It
seems that the more a Buyer tries to convince you they are good for
the loan the more nervous you need to be (see Advisory at bottom of
page). Our Lending Partners are
Licensed in the State of Texas and are members of all Local, State
and National Associations. They are here to protect you from the unscrupulous
or misguided Buyers.
To
ensure you don't accidentally tie your home up for months with the
Buyer from Hellyou need
to understand the difference between a PreQualification, an Evaluation
and a PreApproval.
top
PreQualifying
involves taking the first baby steps towards understanding the type
and amount of loan that will be best for a Buyer. PreQualifying looks
at only one aspect of the qualification process - the ratio of debts
to income.
Sometimes
credit reports are pulled, but these are only prelim reports and may
not be complete.
A
PQ is a good first step for the Buyer when they are in the "what
if" stage, but once they actually begin to seriously consider
buying a home if they don't upgrade to an Evaluation or a PreApproval
they (and you) run the risk of a very
unpleasant surprise.
If
you get a Buyer who has only done a PQ you need to insist they go
further and have an Evaluation or PreApproval before you actually
consider negotiating or accepting a contract.
top
An
Evaluation goes a couple of giant
steps further than a PQ.
A
Buyer's ratios are worked and a complete credit report is pulled including
credit scores. Their financial information is also gathered, researched
and verified.
An
Evaluation tells both the Buyer and the Seller that IF nothing changes
in the interim that Buyer can be approved for a loan IF the property
can be approved.
IF
you already have an appraisal then you know the property will be approved
so you have taken out half of the uncertainty.
An
Evaluation gives a very definitive answer to the question of how much
home a Buyer can afford and allows a mortgage company to give them
definitive answers as to loan types, terms and interest rates.
top
A
PreApproval involves making a loan application.
There
will also be an appraisal, final credit reports as well as employment,
address, and money and verifications that are valid for 60-90 days.
A
Buyer's loan must have been processed quite a way before the mortgage
company can truthfully say they are PreApproved. I
doubt you will ever see a true PreApproval!
Here
are some examples of the information needed for an Evaluation or PreApproval:
•
2 years W-2 forms
•
2 years income history - possibly 2 years tax returns.
•
At least a month's worth of pay stubs
•
Last three months statements of all deposit accounts including savings,
checking, IRA, 401(k), and stocks
•
List of addresses for last 2 years and landlord/mortgage company
names and addresses
•
Additional Mortgage Documents will be needed for a PreApproval
Actually
the term PreApproval is a slight misnomer. A mortgage PreApproval
is not like a preapproval for a car where a person can be preapproved
for $X no matter what car they buy.
Notice
that the paragraph on PreApproval states involves making a loan
application, an appraisal, final credit.... A specific property
is required for a mortgage approval. So a PreApproval really only
means the Buyer has made loan application and their loan has been
sufficiently processed that with the addition of the appraisal (see
I told you you needed an appraisal BEFORE you put your house on the
market) and clear title work on the property they should be approved
when submitted to the Underwriter.
Unless
you are wanting to close very quickly, a true Evaluation is probably
sufficient because an Evaluation says that IF a Buyer buys an acceptable
property then they can be approved. If you don't already have an
appraisal you are taking a big chance.
More
home purchases fall apart due to financing than any other reason.
The sad thing is that most of these failures could have been prevented.
If only the Sellers had an appraisal and insisted the Buyer be Evaluated
before negotiating a contract in the first place. They would have
saved themselves, time, money, aggravation and wouldn't have lost
the home they were trying to buy. I know you get excited when a Buyer
says they want your house, but like we said in the appraisal sections
"Sometimes it is faster to wait!"
Financing
issues are the main reason we have Lending
Partners, they can help keep you out of trouble! Use them
and abuse them! They have agreed to spend whatever time is necessary
to check out your Buyers before you make an irrevocable and costly
misteak.
top
Just
a note of warning
Many
lenders do a PQ but call it a PreApproval!
How
can you protect yourself?
First
if it is one of our Lender Partners
you don't have to worry, they will never call a
PQ an PreApproval - they aren't even allowed to do PQs! If
it is not a Lender Partner
you need tocheck to see if the lender is even licensed in
the State of Texas
BEFORE YOU CONSIDER NEGOTIATING OR ACCEPTING A CONTRACT.
Secondly ask the Buyer when they
made loan application. Unless there has been a loan application
there can't have been a PreApproval.
Thirdly
you need to call the other mortgage company
(or have one of our Lending
Partners call for you) and confirm
they have made loan application, how far along they are in
the processing and just how qualified the Buyers really are.
When
called upon to furnish proof that a Buyer qualifies, many
times the Buyer's bogus PreApproval disappears! Better it
disappear now than 2 days before closing once you have made
plans you can't change!
For
your protection all of our
Lending Partners
must furnish at least an Evaluation of your Buyer.
This way when a Lending
Partner says a Buyer
can qualify you know the odds are in your favor.
If
you get a contract from a Buyer who insists upon using an
outside mortgage company (a rarity) you can still call one
of our
Lending Partners. They
will be thrilled to do an Evaluation of the Buyer & double
check the other Lender's figures even if they don't do the
financing. You just can't ask them to help with the contract,
negotiations, coordinate attorneys, surveyors, title work
or have them shepherd the loan thru closing. Those duties
will now fall upon your shoulders. You lose a lot of extra
help if the Buyer uses an outside Lender -
can you afford that?
WHY
RISK IT?
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