As a follow-on to our last article, Beating All-Cash Offers: 7 Rules To Live By, and to further support your efforts to win in a multiple-offer situation, let’s focus on rule #1 (Transparency) and preparing for those questions a listing agent will ask your buyer’s lending professional.
1. What documents have been gathered from the borrower(s) for pre-approval?
- The more complete the package, including tax returns, paystubs and asset statements, the more reliable the qualification
2. What Qualifying Rate was used to determine the pre-approval?
- For those who choose programs outside of fixed-rate products, the qualifying rate is generally higher than the note rate
- For example, if the note rate for a 5/1 ARM is 2.875%, the qualifying rate is 4.875%
3. What is the ratio of the buyer’s(s’) total debt to income, including the loan required to buy this property?
- Generally, the lower the ratio the better, but keep in mind that FHA programs allow up to 55% debt-to-income allowance
4. Are they self employed or salaried, and for how long?
- Generally, all self-employed borrowers need to be conducting business for at least two years to consider their income for underwriting purposes
5. Where is the down payment coming from?
- Make sure that if a gift is involved that 1. Underwriting allows it and 2. The money has been deposited to the buyer’s account or an account statement from the source reflects the required funds to close
6. Have the down payment and sufficient reserves been verified?
- Any vetted pre-approval letter should confirm that the borrowers assets are sufficient to close the transaction
7. Are they first-time buyers?
- As interesting as it may seem, some creative loan programs do NOT allow first-time buyers; as such, it’s important to confirm that any first-time buyer qualifies for the loan program selected
8. What is the lowest, middle credit score of all borrowers?
- What’s interesting is that there are loans available for those with NO credit, yet those with a difficult history with credit and scores below 640 may not be eligible for financing
9. If not obvious, what kind of institution is the lender (mortgage bank, mortgage broker, direct bank or other)?
- This is important to know since it’s a reflection of control over the process, with boutique mortgage banks having the most control and flexibility
10. What are the appraisal requirements for the loan that they are pre-approved for?
- Larger loans and properties in marginal condition may have added appraisal requirements such as a review or full, second appraisal
11. Is there a corporate overview or executive summary on the company and the individual originating the loan?
- Without this, one should certainly question the legitimacy of the firm
12. What do the client and selling agent know about the institution?
- Of course, if the listing agent is familiar and positive about the firm originating the loan, this can be a huge advantage at the negotiating table
13. Has the lender ever had issues with sufficiently appraising a purchase transaction? And if so, provide details.
- If comparable sales are well below the anticipated purchase price AND the buyer is limited to the maximum down payment required for the loan, the buyer may not have enough funds to close the deal
- What’s always recommended is that either the listing or selling agent are present when the appraiser inspects the property
14. Is the pre-approval backed by manual or automated underwriting?
- While automated underwriting engines like Desktop Underwriter® or Loan Prospector® may be used to pre-approve a client, manual underwriting is a much stronger pre-approval since an underwriter actually verifies the documents supplied
15. How soon could we close if we ratified this contract today, and what are the conditions to closing in that timeline?
- Every loan has a degree of difficulty and it’s good to know whether there are some obvious obstacles down the road that may cause delays
Please keep in mind that not all buyers may be comfortable releasing some of the information above, but transactions tend to go smoothest when transparency is greatest.