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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.
A Sacramento Mortgage Lender Can Make or Break the Escrow
The thing about primarily representing sellers in a transaction is a listing agent rarely gets the opportunity to recommend an excellent Sacramento mortgage lender to a buyer. This is normally handled by the buyer’s agent. That doesn’t stop lenders and their lender reps — the mortgage loan officers (MLOs) — from nonstop spamming / harassing and marketing to listing agents in hopes of attracting their business, but quite frankly they are barking up the wrong tree and going about it in the wrong way.
No veteran real estate agent is likely to recommend a mortgage loan officer due to a brief office meeting or over leisurely coffee breaks (what are those) at Starbucks. Agents recommend loan officers who have proven themselves worthy of a recommendation through performance. We put them on our list. They can’t ask to be added to our list because we won’t add them.
Sometimes I run into a situation with a buyer that is perhaps a bit iffy, which is a good way to describe some of the risky situations I spot. If I don’t recognize the mortgage loan officer in those instances, the sellers and I might suggest that the buyer get a second opinion from one of my preferred lenders. They are preferred because I know and trust them to thoroughly investigate and analyze a situation before issuing a pre-approval letter. They discuss options and make sure the borrower understands the mortgage choices at hand.
When a mortgage loan officer informs the agent, say, a week or so before closing, that the buyer can’t remove the appraisal contingency when an appraisal has been completed, a Sacramento real estate agent might rightly wonder why. Perhaps the mortgage loan officer will say something like the borrower was upset over all of the costs to get an FHA loan and decided to switch to conventional.
You know what that tells me? It tells me that the mortgage loan officer did not thoroughly explain the GFE to the borrower upon inception of the loan. It also tells me that the mortgage loan officer herself probably suggested the conventional loan as an alternative, not realizing that the buyer’s contract did not specify a conventional loan. The sellers will most likely consider this to be a contractual change, whether the MLO realizes it.
When presented with reality, the MLO might argue and say the conventional loan is better for the seller. Really? It might be for the buyer, but it’s not necessarily better for the seller. What if the seller had a former buyer in escrow who had an FHA appraisal previously completed, and what if that was the reason the sellers chose the present FHA buyer? No appraisal problems. Now that the buyer is changing financing, it changes the type of appraisal, and it could affect the entire transaction. Moreover, why would a mortgage loan officer who is hoping for repeat business leave the buyer’s agent out of the loop and overstep?
Perhaps the most endearing quality would be if the MLO desperately tried to justify the new financing by explaining to the listing agent how conventional financing works in comparison to FHA — especially to an agent who has been selling real estate before the MLO was born. Some mortgage lender reps set their own paths for failure, and they don’t need any help from anybody else.
How the New Mortgage Rules Affect Sacramento Home Buyers
At first blush, it was reasonable to figure that the QM (Qualified Mortgage) and ATR (Ability to Repay) new mortgage rules put into place on January 10th by the Consumer Financial Protection Bureau probably would not affect very many borrowers. That’s because lenders had already tightened their guidelines. But some of the new rules are difficult for some borrowers to meet, such as the 43% back-end debt ratio.
For those of you not in the real estate business, a back-end debt ratio is calculated by taking all of your revolving monthly debt, including your mortgage payment, taxes and insurance, and dividing that number by your gross monthly income. For example, if you earn $5,000 a month and all your debt payments plus mortgage obligation adds up to $2,200 per month, you most likely will not qualify to buy a home under the new mortgage rules because your back-end ratio is 44%.
I am a REALTOR in Sacramento, not a mortgage broker, so I won’t go into all the sticky details about how a borrower is qualified for a mortgage because that’s the job of people like Dan Tharp at Guild Mortgage. You can reach Dan at 916 257 1470. He’s a very patient person who will spend all the time it takes to explain mortgage options to you and help a borrower to pick the best loan. He also obtains great rates from major lenders (probably better than you can get directly), so if there’s a bank you particularly want to get a loan through, he’s your guy.
I can tell you that mortgage lenders are definitely more thorough lately. Just the other day, we had a lender run a nationwide check on a borrower. This was not my borrower but the seller is my client. Also, this would not have happened in the old days. This lender looked for lawsuits or any other kind of derogatory item filed against the borrower and sure enough, it found a lawsuit filed in Missouri.
The Social Security numbers matched, even though the borrower denied that he was one and the same person. After a bit, he finally backed down and admitted that the lawsuit was his. And you know what? He did not get the loan.
Waiting Periods Are Over for Buying After a Short Sale
You might be able to immediately buy a home right after closing a short sale
Having personally helped hundreds of sellers in distress close Sacramento short sales — to the tune of more than $65 million since 2006 — and put the entire horrid nightmare behind them, I often hear first-hand a seller swear she will never buy another home ever again. I caution with a grin, “Oh, I wouldn’t be so certain about that if I were you.” Those are often famous last words. If that were true and we all had long memories, women would never get pregnant a second time.
Believe it or not, there is joy and pain in a short sale. Over time, the pain and frustration from the short sale dissipates. Not only that, but the minute a short sale closes escrow, there is a huge sense of relief that suddenly appears out of nowhere. It’s almost as though the clouds stopped raining and tulips instantly bloomed in technicolor. You can hear angels sing. At least that’s what my sellers tell me.
Today, many short sale sellers are returning to buy a home after closing short sales. How soon can you buy after a short sale? The good news is if you have 25% to put down, you can buy immediately. Further, if you have completed a HAFA short sale without a Notice of Default nor late payments from the summer of 2013 forward — and if the lender reported your short payoff correctly as PAID IN FULL — you should be able to buy immediately under any financing program, including FHA with minimum down.
But FHA also has implemented its own Back to Work program for sellers who have “Paid in Full for Less Than Agreed” reported on their credit reports and who experienced an economic event, which allows a repurchase within one year. That’s pretty incredible as compared to the lengthy waiting times from the past. It used to be 7 years, then 5, then 3 years, (2 under Fannie Mae).
See, with time, lenders finally come around. I suspect they had to eventually because short sale sellers are not like foreclosure recipients. Short sale sellers are responsible people who struggled to do the right thing. They have a conscience, generally, and do unto others as they would have them do unto them. That’s a special breed. And these people deserve a second chance. I’m thrilled to see home loans available for them, without a big scarlet S hanging around their necks.
If you would like more information about buying again after a short sale, call Dan Tharp at Guild Mortgage, 916.257.1470 or email him at dtharp@comstockmortgage.com. Then, call this Sacramento real estate agent, and we’ll get you started on looking at homes to buy: Elizabeth Weintraub, 916.233.6759.
