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First Things First Obtain A Mortgage PreQualification
I’ve often heard that most mistakes are made at the beginning of a Real Estate Transaction. That is true for Mortgages, where a Loan Originator has a unique opportunity at the Loan Application stage to set expectations and ask all of the right questions. Most of the hardships/hurdles that occur during a Real Estate Mortgage Transaction can be traced back to that initial Loan Application (and/or pre-qual), and in most cases not all of the right questions were asked or the right answers weren’t provided.
Well, the same is true for the Real Estate Agent. During that initial call or meeting, the agent is trying to gauge the Customer’s Interests, Needs, Timeframe, etc while trying to build a rapport at the very same time. In the case of a Buyer, one of the Key Questions that an Agent needs to ask is, “have you been pre-qualified for a loan”. The challenge here is to try and connect with the Buyer is such a way that they may be compelled to answer that question openly and sincerely. If an Agent comes across pushy or disinterested and, if rapport has not been properly established, Buyers typically follow with a barrage of “canned” answers. All too often, the Buyer answers with: “Financing will not be a problem”, “I have over 800 in credit score”, or the difficult to overcome, “I want to see some homes first before I decide on financing”.
First Things First, in order to fully understand A Buyer’s needs and the direction of the transaction, an Agent must fully understand the type of financing a Buyer is pre-qualified for (period). For example, if a Buyer is pre-qualified for 95% conventional financing and is looking for a Condo, then the Agent should only show properties in communities where a Full Condo Review is Possible. This is especially true for an Investor Purchase of a Condo where most transactions will require a Full Condominium Review (a very difficult process in some communities). The same is true for an FHA Buyer looking for a Condo in Miami-Dade County, for example, where less than 20 Condominium Projects are currently approved for FHA Financing (we are all hoping this will change soon and there are indications of new rules relaxing some of the Condo guidelines – but for now, there are less than 20). FHA and VA Appraisal Inspections call also be a bit tougher on property conditions and, in most cases, knowing if a property qualifies for FHA or VA Financing is important. Sometimes a Buyer may need a rehab loan, such as the FHA 203K or the Fannie Mae Homestyle Mortgage and not all Lenders have the knowledge or availability of such a program. A Lender Financing the Purchase of a Foreign Buyer may have specific restrictions as to the type of property or community they lend in. Private Mortgage Lenders can also limit the types of properties they are willing to lend upon.
Therefore, getting an accurate answer to the pre-qualification question can save everyone a lot of time and future headaches. Getting this answer from the Buyer at initial contact may be difficult as naturally some will be guarded (after all, they are speaking with a Salesperson). I recommend explaining to the Buyer the importance of a Proper Mortgage Pre-qualification as it will help guide the Agent when showing properties. Also, a Mortgage Pre-Qualification is necessary in most contract negotiations (where Financing is involved). So, falling in love with the perfect property without a Mortgage Pre-Qualification ahead of time, will leave a Buyer scrambling trying to submit necessary documents to a Lender before the property is GONE. But, in some cases, the Agent may need to show the Buyer a property or two before they establish the rapport necessary to earn the trust of knowing if and how the Buyer has been Pre-Qualified. But, the Agent cannot waste too much time without knowing exactly how the Buyer will finance the purchase.
Now, once the Agent knows that the Buyer is Pre-Qualified, what happens next? In my opinion, once the Agent knows who the Buyer is using for Financing, I would suggest engaging that Lender’s Loan Originator. Establish contact and create synergies with the Lender early on in the showing process. First of all, involving the Lender in the house-hunting process is important because you may need to run a property scenario with the Lender or you may need an updated Pre-Qual Letter or you may need to know if the Buyer can qualify for a larger loan amount. Additionally, having the Lender as an ally in the transaction will go a long way in staying engaged with the Buyer. Additionally, knowledge of the Lender’s Mortgage Products is also essential moving forward. For Example, a Buyer looking for an for an Investment Property while financing through FHA may have a very difficult time as these loans are generally used for Primary Residence. A VA Buyer looking to use VA financing and needs the additional income of a non-spouse to qualify may also find it difficult to secure financing.
Finally, a Buyer’s Mortgage Pre-Qualification is what greases the proverbial wheel of the House Hunting Process. It provides direction and, hopefully, clarity to both the Buyer and the Agent. It puts everyone on the same plane and will hopefully reduce stress for all involved (including the Seller).
So, happy house hunting to the Buyer and happy selling to the Agent, but don’t forget to get that Mortgage Pre-Qualification First so that everyone may concentrate on the exciting process of obtaining a new home for the Buyer.