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Top 3 Loan Preapproval Mistakes by Sacramento Home Buyers
The biggest loan preapproval mistake is plucking an out-of-state lender off the internet.
Sellers’ agents in Sacramento insist that the buyer submit a loan preapproval with the purchase offer. They want to see that the buyer is qualified to purchase the property and has at least taken the steps to talk to a lender. But the letters themselves don’t guarantee that the buyer will get a loan.
If you want to give a Sacramento home seller ammunition to reject your purchase offer, here are three things you can do to mess up your loan preapproval process:
Choose an out-of-area lender. There is nothing inherently wrong with an out-of-area mortgage broker, but listing agents typically won’t know the lender nor its performance record and, let’s face it, there are a lot of loosely-defined mortgage brokers practicing. Listing agents and their sellers don’t want to watch the transaction fall apart because the buyer tried to get a loan from a lender that could not perform or did not fully vet the buyer.
Submit a prequal letter instead of a preapproval letter. A prequal letter says the lender has had a conversation with the borrower. A loan preapproval letter generally discloses the lender has a completed loan application, obtained the buyer’s credit report, approved it, ran it through actual or desktop underwriting and reviewed the buyer’s documentation. It speaks volumes.
Attach a loan preapproval letter that shows the buyer is qualified to pay more than the asking price of the home. Nothing says to the seller: “Let’s issue a counter for a higher price” faster. In fact, the mortgage broker I work with emails me the preapproval letter in a Word format so I can immediately lower the price, if necessary, before submitting the offer.
I always suggest that my buyers compare rates and terms among lenders, although I have no stake in the lender the buyer ultimately chooses. That’s the buyer’s decision to make. But I do want to submit the buyers’ offer in the strongest light possible, and that means submitting a preapproval letter (not a prequal) with their offer.
If your lender can’t or won’t issue a preapproval letter, then you might want to look for a lender who will. Don’t sabotage your efforts to buy a home by making these loan preapproval mistakes. Call Sacramento Realtor Elizabeth Weintraub at 916.233.6759 for a recommendation to a local Sacramento mortgage broker.
What is a DU and Why Do Home Sellers Ask to See a Buyer’s DU?
A DU shows more than credit scores for a home buyer.
Putting a home into escrow these days is only the beginning, the truly difficult part is getting that home to close when the buyer is obtaining financing; sellers deserve to know the buyer’s qualifications. The pre-qualification letters or those parading as preapproval letters are a start, but they are not the “be all and end all” for buyer qualifications. It means a buyer has contacted a lender to discuss income, credit and debt. It does not mean that income, credit nor debt has been verified. That’s the kicker.
What’s a seller to do? A seller can ask the buyer’s lender to deliver a DU. What is a DU? That’s short for desktop underwriter. Now, you would think that most lenders would automatically run a DU on borrowers, but they do not. How do I know that piece of trivia? Because 9 times out of 10 when I ask for a DU — no, make that 10 times out of 10 — I get a document dated today. I can’t recall ever receiving a DU dated a few days back.
What is a DU to you? A DU shows debt ratios — both front end and back end — meaning the percentage of income to the mortgage payment and the percentage of all debts, including the mortgage, against income. Those inching toward 50% are red flags. It also shows creditors, unpaid balances and FICO scores.
Sometimes we will receive a DU with all of the pertinent information blackened out. Sometimes, lenders send only the front page. Sometimes they don’t send a DU at all but deliver another credit picture with more lenient scoring attributes, especially for those with fewer than 2 years on the job. And we often hear the words “our mutual client” from the mortgage lender. I want to say stop with the lingo and salesmanship. The difference, of course, is the buyer is a client to the Sacramento Realtor but the borrower is typically a customer instead to the mortgage lender.
Mortgage lenders, just like real estate agents, come in all shapes, sizes, experience levels and ways of doing business. If a buyer gets a difficult mortgage lender, one who doesn’t want to cooperate with the seller and the listing agent, it doesn’t fare well for the buyer. That’s one of the reasons why some buyers are not buying a home today.
Why Your Mortgage Lender in Sacramento Matters
Out of the 7 closings this Sacramento real estate agent is working on this week, only 2 transactions, according to the mortgage lenders, are closing are time, which makes closing delays pretty much par for the course for this week. Why? Because of the mortgage lenders. A few of the escrows are delayed because the buyers could not qualify for a conventional loan and were informed at inception that they should choose FHA but instead opted for conventional. Or, at least that their mortgage lender’s story and the guys are sticking to it. In others, everybody else thought somebody else was doing a job that nobody else was doing. Total cluster-you-know-what.
It’s also possible that the buyer’s agent felt the buyer didn’t stand a chance in hell of getting an FHA offer accepted upfront so the agent wrote the purchase contract with conventional terms and obtained the preapproval letter showing conventional financing, figuring who gives a rats if the transaction doesn’t close on time. But most buyer’s agents aren’t that devious. I suspect the truth of why some mortgage lenders can’t perform lies somewhere in between.
When a buyer runs past the closing date, the contract has expired. The seller has the option to cancel the transaction. The seller is not obligated to give the buyer more time to close the escrow. A lawyer might argue on behalf of the buyer and say the buyer invested money for the home inspection, paid for a pest inspection, perhaps other reports, and showed a good faith effort to close. She might say it’s not the buyer’s fault that things were delayed in underwriting or the mortgage lender messed up.
But that’s a tough argument if the contingencies haven’t been released, and the seller might believe the buyer is in breach of contract. The seller might give the buyer a Notice to Perform and then cancel. And let’s face it, many first-time home buyers barely have two nickels to rub together, and they can’t afford to hire a lawyer. So, they better choose a mortgage lender who can properly advise them and then follow that advice.
Here is my advice for home buyers today. For crying out loud, mortgage lenders all have access to pretty much the same ol’ bag of money, and you’re not gonna save 1/2 point here nor there, so pick the mortgage lender in Sacramento who can perform. Pick the company that won’t lead you astray. Pick the loan officer who will have your back. Don’t go with the guy who dishes out apologies when you’ve lost the house.
In all of my years of working with and referring business to Dan Tharp, this mortgage lender in Sacramento has never disappointed.
Sacramento Sellers Who Sell a Home Twice
Words a Sacramento home seller never wants to hear — and no, it’s not anything like we need to catch the Chihuahuas, but runs close — are: the buyer needs to cancel escrow. Especially at the last minute, when contingencies have been removed and everybody expects the loan to close. Part of the shock is the seller has already in her mind mentally closed escrow. She’s generally moved on and is just waiting for the check.
It’s jarring news to find out the buyer can’t close. It means a seller must sell a home twice. And why can’t the buyer close? Because the buyer can’t get the stinkin’ loan. The first thing sellers question when this happens is what about the preapproval letter? They believed the lender who said the buyer was qualified to buy a home, and I don’t blame sellers for feeling misled. Mortgage lenders don’t guarantee preapproval letters. But there’s more to it than that.
Sometimes, you don’t know that one of the parties has a lien filed against that person until the preliminary title report discloses a judgment. If there are two people buying the home, the lender generally removes one of those persons from title and proceeds with the remaining individual, providing the remaining individual has enough income to qualify.
Which reminds me, a teacher yesterday in Redding wrote and asked what piece of advice I would give first-time home buyers today. That piece of advice is: don’t buy a home for which you must rely on two incomes to meet the mortgage payment — because people split up, get divorced, become sick, die or lose jobs. Things don’t always stay the way they are.
That’s good advice for anybody to follow. But the really important thing I tell sellers is if the buyer does not qualify at the end and needs to cancel the escrow it could actually be a good thing! When I say this they look at me like I’m dense, this goofy, overly optimistic agent. However, it could mean that the seller will put her home back on the market and sell it for more money, perhaps even to a buyer with cash.
That’s exactly how it generally works out, too. It can be a good thing if the buyer cancels. And because I’ve closed over the years hundreds of short sales in Sacramento, this Sacramento real estate agent has unparalleled experience in selling a home twice.
The Press Say If Your Mother Says She Loves You, Check It Out
Don’t deviate from the plan. That’s my motto. Because I’ve learned that 9 times out of 10, if I make an exception to the way I do business, it comes back to bite me. In other words, it’s better to be safe than sorry. Once you’ve got a system that works, stick to it. Don’t back down. Ever. The day you do, you’re screwed.
But I know that you won’t listen to me because sometimes I don’t even listen to me. I’ve been known to break my own rules. But at least I know better . . .
In the fall of 1998, it was cold in Chicago. I grabbed my then-boyfriend’s hand, pulled my fox fur collar closer to my neck and we scurried along Michigan Avenue. The wind was blowing in over the lake. Brrrr. You might think that Chicago is called the Windy City because it’s windy, but that’s not the case; Chicagoans say it’s named the Windy City for its windy blow-hard politicians. We had flown in from Minneapolis and were headed for that famous building with a sculpture of a rabbit drummer in front — I believe, if memory serves, it was the John Hancock Center.
My husband was and still is a journalist. He just doesn’t work for anybody now. Like many journalists who hailed from Chicago, he cut his teeth by working at the City News Bureau. It has a fond place in his heart. Rough, rowdy and real. In 1998, the City News Bureau was closing after more than 100 years of service, and we were going to the top of the John Hancock building to attend a farewell party. It was bittersweet for many alumni in attendance. The slogan that every beat reporter knows and repeats from the City News Bureau is: “If Your Mother Says She Loves You, Check it Out.”
I latched on to that phrase because I know it is true. It’s good to be skeptical. Like Dr. Gregory House says, “Everybody lies.” It’s even more important to be skeptical as a Sacramento short sale agent — or any kind of Sacramento real estate agent, for that matter.
I received a very attractive offer last week from a buyer’s agent on one of my Sacramento short sale listings. Everything about the offer screamed take it. It was well written. Healthy earnest money deposit. The buyer’s agent and the buyer promised to wait for short sale approval. It was above the asking price. However, the buyer’s preapproval letter did not match the loan amount. It was for less.
When your mother says she loves you, check it out. We wrote a counter offer asking for an updated approval letter that reflected the loan amount. No, problem, the agent scoffed. The buyers are fully qualified. I was tempted to let it go but I didn’t. Don’t deviate from the plan. Guess what? The buyers did not qualify for the higher amount. No joke. Especially in a short sale, you do NOT want to find out the buyer is unqualified upon short sale approval.
While Elizabeth is on vacation, we are revisiting her favorite blogs from previous years.
