Friday, March 13, 2015

Buyers Need Their Loan in Place First!

I have a listing, a gorgeous 2200 square foot home in a neighborhood full of kids built in 2004. The price is right and it has been very busy with showings and offers. Funny thing is that three times this property has had offers that either failed to close or were withdrawn due to financing issues. Even though buyers are "pre-qualified" they should be "pre-approved" before making an offer. But even pre-approved can be tricky especially if the buyer is right up near their maximum borrowing limit. One of the three was due to the proceeds on a contingent sale falling short of the lenders required down. That was an unusual issue. The other two however were pre-approved borrowers that were likely riding right up against the max credit available trying to buy this home. As a listing agent I have the duty to get as much out of the buyer as possible and to help my seller pick the strongest offer. Even due diligence however can become moot when the buyer is pushing the limits of financing.

Pre-approvals differ from pre-qualification in that a pre-qual is based off verbal or online questionnaires about income and expenses with a soft credit pull. Approvals have the income documents in, full credit pull, and a computer underwriting approval in place. The pre-approval is conditioned upon the buyer maintaining their credit standing, down payment, and rates remaining favorable. If the borrower is trying to buy a house right up against the maximum amount approved, then it is real easy for that approval to go away if anything changes in the buyers financial situation of if rates have a negative fluctuation.

Back in 2012 when housing prices were at or near the bottom, I found that buyers were very cautious. It seemed like nearly every buyer was looking at houses well below the lender approval amount. As a result I had almost every single deal close once past the inspection period. These days it seems buyers are pushing things right to the ragged edge. That could be due to the sharp rise in prices. Let's face it, three years ago I could put a buyer into a nice clean livable house in a solid neighborhood for well under $200k. Frankly, $150,000 bought a great starter house. Those $150k homes are over $200k now, and that means buyers are pushing the financial envelope a little harder these days.

Seller's need to be diligent with the financing contingency and make sure the borrower is really approved and that they have a loan lock in place as soon as possible after the inspection period. Buyer's need to be sure to avoid adding any new debt during the entire home buying process. Buyer's also need to be vigilant in protecting their credit score as a drop in score may cause a "hit" to rate. If the buyer is up against the ceiling that slight 1/8th hit could crash their deal.

My experience has been that buyer's approved from large online national mortgage companies are far more likely to crash than those using a major or local bank, credit union, or local mortgage company. It seems like the online companies use best case scenario tactics to lure buyers to them. That best case scenario often does not materialize and the buyer is left with no loan after spending money on an inspection and maybe an appraisal as well.

Lenders are the most important piece to buying a house unless the buyer is using all cash. The best agents have one or more trusted lenders that they know will give their buyer solid approvals and offer the highest chance of a successful closing.

Buyers should to some extent shop offers between lenders but understanding that most loans are ultimately underwritten by the same small group of investor's standards. FHA and VA approvals should be very similar across all lenders. Fannie and Freddie loans will also be pretty close on approval amounts. The difference between lenders will usually fall into the fee category. This is where a buyer can shop the deal around. I have found that after the strict regulations imposed following the market crash that most local lenders fees run pretty darn close. Sometimes one bank may offer a program or an underwriting exception that might help a buyer get a house. Any claims of getting a significantly larger approval amount however are likely bogus.

This is a seller's market and buyers need to be ready to close. The loan and proper down payment need to be in place before buyers submit an offer. Buyers are risking the expense of inspections and possibly appraisal when making an offer so having the loan solidly approved just makes sense.


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