INTERESTING STATISTIC – One of my colleagues shared with me an amazing statistic:
Almost 30% of real estate transaction in the US are falling through AFTER GOING UNDER CONTRACT.
I don’t know about you – but I want to do what I can to prevent things from falling apart that I have responsibility for, especially after you have worked hard to earn the trust of the buyer, shown them countless homes and worked hard to negotiate best terms possible with the seller. Our team closes 100% of transactions due to factors within our control.
My team and I are experts in our field. We have successfully closed over 1000 mortgage loans over the five years. Our clients depend on us to give them professional advice on how to make their real estate transaction as smooth as possible. While there are some things we can’t control (inspection and appraisal issues come to mind), one thing that my team and I can do to increase our odds of having successful transactions is by issuing a complete pre-approval upfront (not just a pre-qualification) – before the buyer starts looking at homes with you.
To help ensure your clients have the best possible chance of a smooth closing, make sure you work with a loan officer who takes the time to put clients through the three tests of a valid Pre-Approval:
#1 – What is the TRUE income?
Often a prospect will say their income is $70,000. The LO issues a Pre-Approval based on that representation. Practically every mortgage requires an executed IRS 4506 Form (which allows your lender to verify your income directly with what you file with the IRS). Believe it or not, but many people (even salaried W2 people) take write offs, like Unreimbursed Expenses, that underwriters will deduct from income earned. That would lower their $70,000 income and affect the amount our prospect would qualify for. Often, there are challenges with overtime and bonuses. The bottom line is, if your LO did not review your actual tax returns (like the underwriter will), the Pre-Approval is almost worthless. Same with self-employed borrowers. Trust only loan officers who understand these tax calculations.
#2 – When was the credit run?
Most lenders will need to re-run credit after 90 days. The credit scoring models are extremely sensitive. If a score moves just 10 points lower, we have seen approved loans quickly become denied loans. We have also seen situations where a change in credit score requires a change in pricing (sometimes causing a higher rate and sometimes requiring additional points to be charged). In either case, these changes can put deals in jeopardy. Being aware of the time frame you have to close before needing to update a credit score is important and should be taken into consideration.
#3 – Where are the assets?
Often when pre-qualifying a borrower, a loan officer will ask how much cash they have to close. Once the file is actually put into processing, we have to deal with sourcing large deposits, gift monies, withdrawals from retirement accounts, sometimes “cash” deposits, or sales of personal property. Lenders want to know where your money is coming from. Your loan officer should be reviewing bank statements and such before issuing the Pre-Approval.
Gone are the days of “take the loan in and we’ll figure it out.” Underwriting guidelines make that impossible. We have always taught people that lenders look for five things- income, assets, credit, appraisal and external conditions …..and all of these should be analyzed, really analyzed, before issuing a Pre-Approval to help ensure that we close the highest possible percentage of applications taken.
As always – my team and I are here to help and are continuously looking for ways to help you close more deals! We are closing loans on our end. We are regularly “saving the day,” as well. This is simply due to our knowledge, our experience and our expertise. If you have a client who is unsure that their loan officer has performed all of the “pre-approval” tests – please call us – we are always glad to help.