Real Estate Blog - QUALIFYING BUYERS ISN'T ROCKET SCIENCE! IT'S OUR JOB!

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QUALIFYING BUYERS ISN'T ROCKET SCIENCE! IT'S OUR JOB!

* * * * HARD CORE REAL ESTATE TALK * * * *

AGENTS: HAVE YOU EVER HAD A CONTRACT FAIL, EVEN WITH A "LENDER'S LETTER" ? . . . . .

Not a week goes by that we don't read a blog post about a contract that fell apart due to a loan officer's last minute advice that the buyer doesn't qualify. Sometimes the contract has been accepted and the burden is then on the BUYER'S AGENT to advise the listing agent that, "SORRY, the loan officer just called and . . . . . . ."

We old timers know how to read the numbers and are not surprised by untimely qualifying issues.

Use a Financial Statement! Learn to read the numbers!!

We use a simple Financial Statement. We use a simple calculator. We look at our buyers assets and liabilities and "qualify" our buyers or buyers who write contracts on our listings. Homefinders.com calculator

We do not rely on loan officers to qualify. Qualifying a prospective home buyer isn't rocket science. This is a simple calculation. We're not qualifying buyers for credit and we rely on trusted loan officers to do that. We use qualifying ratios to determine price range. However, the agent needs to do two calculations. One for the ratio of mortgage payment/income and one for all debt/income.

How many times have we read ActiveRain blog posts about a contract that fell apart even though it was accepted by the seller (and listing agent) based on a "Pre-Approval" letter.

Question: Was that "pre-approval" letter based on anything more than a review of the credit report?? Hey! What about documenting the income and liabilities?

SELF EMPLOYED BUYERS ARE DIFFERENT. What do you mean, "the buyers have additional debt". What do you mean the self employed buyer has business expenses? Didn't the loan officer review the tax returns of the self employed buyer???

FRONT RATIO/BACK RATIO. We use ratios of 30% for an estimated PITI/gross monthly income and 40% for All Debt/monthly gross income.

30/40%. The concept was learned in real estate school. It is further perfected in our CE classes for Real estate finance. It's important and separates the agents who consistently have successful closings from the agents who simply write a lot of contracts.

Step 1. Provide the buyer with a Financial Statement Form.

Step 2. Run a qualifying loan amount based on 30% of Gross Monthly Income.

Step 3. Add the down payment, if any, for the estimated price range.

Step 4. Run a qualifying 40% of gross monthly income for all debt.

You can adjust the ratios based on the amount of the down payment and other factors, but these are reasonable qualifying ratios for most loan types. VA is different but these ratios will still work for basic qualifying.

If the buyer is self employed, the agent MUST base their calculations ONLY on taxable income, not gross income, as with a salaried buyer. This shouldn't be a surprise to real estate agents since we also file a Schedule C for self employed.

AVOID LAST MINUTE SURPRISES. Buyer's agents can save everyone a lot of angst by simply learning how to qualify their buyers. Seller's agents can save everyone the angst of failed contracts by simply requiring a Financial Statement with an offer and qualifying a buyer marking an offer on their listings. Don't be surprised at the last minute when the loan officer calls and advises that the buyer can't g Qualifying Home Buyers et financing.

When writing an offer, the first document is the Financial Statement handed to the buyer to complete while the agent runs an Estimated Closing Cost. Those two documents alone will determine whether or not the offer should even be made. The Financial Statement is going to give the agent information to qualify a buyer and the Estimated Buyer's Closing Costs is going to put in writing the cost to close. Often buyers are surprised by these numbers. Sure, if the buyer's have made loan application they should have received a Good Faith Estimate from the loan officer. Yet, every week we read of buyers who are "disqualified" at the last minute.

This is just good business practice. The cost of a failed contract is enormous to the buyer and seller, not to mention the agents and brokers.

Failed contracts are almost completely avoidable.

YOU MUST ASK FOR FINANCIAL INFORMATION. I've had new agents indicate that say that they couldn't ask a person how much money they make. I tell them that they are in the wrong business. Then I teach them how to qualify a buyer. It isn't rocket science.

FOR LOAN OFFICERS who believe that agents shouldn't get involved in qualifying buyers and "send the buyer to a lender first", all I can say is, when the contract fails due to a worthless "Pre-Qualified" letter, it's the agent who has to break the news to the seller's agent. We may have worked with a buyer for months and, based on a Pre-Approval letter believe that we are on firm footing to write a contract, negotiate a contract, manage inspections, prepare for settlement, etc.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-mail.

Posted by Lenn Harley, Real Estate Broker, Maryland & Virginia on 05/11/2009 08:09 AM

Comments (256)

Qualifying Home Buyers in the Mortgage / Finance Channel

buying a home

Originally posted at: MD, VA Foreclosures, First Time Buyers Grants, CDA Loans MD, Rehab Loans MD & VA: QUALIFYING BUYERS ISN'T ROCKET SCIENCE! IT'S OUR JOB!

Post is included in group: The Ninety-ninth Percentile
Post is included in group: Realtors®
Post is included in group: Buyer Information - What Buyers Need to Know in Today's Market

256 Comments on QUALIFYING BUYERS ISN'T ROCKET SCIENCE! IT'S OUR JOB!

MAY

We always need to dig deeper than the pre-qual letter. More now than ever, it is critical to speak directly with the lender.

You bet. Still, I am not at all comfortable relying on anyone else to qualify a buyer with whom we are going to spend many, many hours finding a home.

Sure, I'm a control freak, but I don't have contracts fail.

I ask a lot of nosey questions, but always tell my buyers that the reason I ask is to better help them. No one to date has taken exception to my questions, nor when I get the calculator out.

Hey Lenn I had someone the other day that forgot to disclose to the lender that he was paying $900 a month in child support! We had them redo the top $$$ before we got into trouble with the wrong house. They don't always know what they don't know. Good reminder.

Lenn you are 100 percent correct but I am lazy so I use good loan officers . I also ask questions too. But this is a great post and it amazes me that folks in our business make no effort to check out a buyer

Kris. Indeed. If a buyer is not forthcoming with me with financial info, they need another agent. So far, in all these years, I've had two prospective buyers refuse to give financial info. I wished them good luck.

Paddy. HA! I know what $900 a month can to to a ratio. Good for you.

After spending almost 15 years in Mortgage and having certifications to underwrite loans I find it a valuable asset to my clients. I don't have any fallout because of it. I qualify all my clients myself!

Lenn...

I think that if we have good, realistic LO's that we trust and have used many times, my preference would be to let them handle the interrogation.

I have a few that have NEVER let me down.

Right on target as usual. It is not time consuming nor extremely complex but most never bother. Personally I prefer cash buyers with proof of funds verified!

Laura. Thank you. Thank you. Thank you. So do I.

In fact, once I have sat with a buyer and gone over the qualifying process, they are mine, mine, mine and they are aware of what everything meant. You're a pro.

Richard. So many buyers are exposed to Internet lenders and we have to be careful. I am not comfortable with other folks' numbers.

Gary. Not too many of those around in my neighborhood.

I'm finding that it also is an issue when working with a SELLER.

Sellers need to know what they're going to need to potentially come up with at the closing in hard numbers.

How many sellers are totally forthcoming when they're on the edge?

Sometimes you can find yourself with a fabulous offer that checks out, but the seller hasn't done the due diligence on his own numbers and all of a sudden finds that the offer is going to put him in the hole, even though all along you've been discussing numbers - before you listed the home you've been discussing numbers - and before they accept the offer you've been discussing numbers.

And at P & S you hear that their numbers weren't good and now they 'need' more???

Lenn... I know you know what you are doing... and this works for you. Sure, you can look at their assets and their income... but most of the ones that seem to be falling out are over credit issues. Secondly, does an agent understand if the person gets paid twice a month or every two weeks? I think having an understanding is good. And yes, I have talked to a few clients that didn't qualify because of income, and this was found out last minute.

I will say this... I have no problem ever speaking to the listing or selling agent, any lawyers, or friends / family members. I will agree, if the loan officer won't give you the time of day, or are short with you on the phone, that these could be red flags also...

jeff belonger

Lenn, I have found that the LO is able to put the buyer to the truth meter...while the DTI is good, the credit score may not be. BTW, my husband is a rocket scientist ; )

PS... Lenn and @ Paddy... that loan officer that didn't know about the child support? There should be like 7 to 10 basic income/credit/asset questions always asked before even pulling credit.

How much of a payment would you be comfortable with? A range, to include taxes & homeowners insurance.
Are you buying the property as a primary, 2nd home, or investment property.
Is the property a SFD, condo, duplex, tri, etc, etc?
How long have you been on your current job.
Are you hourly, salary, or self-employed. (how are you paid - twice a month or every two weeks)
Do you have or get child support/separate maintenance.
Have you had any bankruptcies or foreclosures in the last 7 years.
2 part question - What are your total assets to incl. checking, savings, 401-k, stock options, etc, etc. And how much of this do you want to use.
Do you rent and or own - how long have you been there. Do you pay by check, cash, money order. And have you ever been 30 days late in the last 12 months.
(I do ask if they have had credit pulled in the last month or so, and if so, if they knew their credit scores)

Then I pull credit depending on the answers...... if a loan officer fails to ask any of these questions, this is where your problems will usually occur. On the income issues, I have seen many loan officers that can't calculate income correctly. Anyhow, I just thought I would share what I would consider to be the main focus of a pre-qual or qualifying that borrower without viewing credit.

jeff belonger

When I first got my license here in Maryland our instructor made us do the scout oath and swear "I am not a tour guide". A prequal letter isn't worth the paper it's written on, a pre approval letter is only marginally better. I also call the lender and verify that he's pulled the credit, verified the income and tax returns and the letter is a bonifide preapproval letter, and not a single buyer gets in my car without having been through that process. If it's a dot com lender I encourage them to use a local lender. I also request they fill out the financial information sheet for my files, explaining that some sellers will need this so let's get it out of the way now and take a copy of their license for settlement. I do this at the same time we go over the Buyer's Agency Agreement. Thanks for the great post Lenn!!

I ask questions, but I don't get a financial statment. With the occassional client I have who is buying a home to live in it's more important, but when my clients are buying a vacation home it's usually not an issue. Self employeed is another game altogether. I have had committment letter and then a change of heart by lender and other lender did the loan in 10 days.

Lenn...

This is excellent :)

TLW...ROAR!

Lenn, I also believe in discussing the numbers with buyers and sellers. Buying and selling are finacial transactions, the emotional part of choosing a home comes secondary.

Lenn, now that traditional qualifying is back, we all need to be providing to buyers their limits using simple ratios- perhaps the "anything goes" practices have created too much in the way of outside dependence. I can only imagine if my experience were limited to recent lending transgressions- it would be difficult, but imperitive, to get educated quickly!

As a listing agent, I wouldn't want to explain to the seller that I didn't do the due diligence for them that they expect me to do and the contract headed south as a result. Good post.

I think the buyers should educated themselves on how to qualify before they buy a house. That is why I am here, to provide them the education they need through our college.

Some buyers have circumstances that require an underwriter approval. I have one with a year's job gap. It is at two lenders right now. It is all I can do to keep the buyers and realtor involved from putting a contract on the home.

It is not always the lender's fault. Have had numberous buyers flatout told not to sign a contract, and the realtor as well. Only to come in Monday with a signed contract and 3 weeks to close.

You can say that I should not give a preapproval letter, but the buyers will just go somewhere else to get one. And frankly, I think they have a better chance for a quicker approval with me.

Problems on both sides. We can only communicate the facts as best as possible, and work for our buyers and borrowers.

Straight ratios though are not even now the most accurate determinant, despite the recent restrictions with some lenders and MI companies.

Great points for discussion Lenn.

Richard

I am sticking to my personal rule. When a buyer is not talking to a banker/mortgage broker before looking at a home, I will not show them any homes.

I do not want to waist my time and theirs by looking for home they might not can afford.

Bettina

Thanks Lenn for an excellent post. Financial information is so important. Since moving here (Lewisburg WV), I find most agents do not discuss the financing with their buyers....they send them to a lender. I did financial sheets on buyers in Virginia, and because of this post, will start doing it here.

I believe the best way is to have a buyer Pre-Approved instead of Pre-Qualified. This shows that the Buyer is really wanting to buy a home and not just out wasting your time.

Lenn, Excellent information for ALL agents. As a listing agent, we need to "qualify" the seller to see if they can afford to sell. And of course we need to see if the buyer can "qualify" to buy. Beautifully written post and well deseserved gold star!

Yep you hit the nail on the head again!

Lenn,

This is good information for all of us to remember. I think that integrity plays a very important role in this process too.

A great point that you raised, Lenn, but you are a broker and have been at this for longer than most of us. Something that I will start doing as I become more comfortable with it; in the meantime, I'll trust my team of mortgage lenders to handle that aspect of the transaction process for me, unless they prove to be unreliable in that area.

Lenn: Thanks for the post! I actually think it's great when the realtor knows about this stuff. it makes it even easier to communicate about the deal. You bring up some great points. In the end, it's all about trust. We want to work together to get our client what they're after. As long as we're not controlling the process and hindering each other, it's all good. Thanks again!

I enjoy working with real estate agents through the process. I believe that we are on the same team and should act accordingly to get the client through the finish line.

Lenn - Very good post, as usual. You are right about the internet lenders too. I have broken off client relationships when they insist on using an internet lender. If they don't want to share the information with me or use a reputable lender, then I feel as though I'm wasting my time...

There was a time when a letter from a mortgage company meant something, yes the client's breath showed on the mirror, approved! It nice to get back to tradition sometimes. A client now goes to a mortgage company with full docs, and goes through real underwriting. I used to say I would never date an underwriter because their job is to find fault with everybody. Now we need that so that we don;t waste our time, or the seller's time. I tell me buyer's that full underwriting approval is worth money. It is easier to negotiate a better deal when the other side knows that the buyer can really close.

I need to have the following to work any of our great buyers or sellers.

Buyers- Must be at-least AU underwritten; PREFER fully underwritten approval with home TBD.

Seller- I condition all acceptable offers; requiring an acceptable finance approval or the contract be comes voidable.

I SO disagree with this post. I wouldn't QUALIFY my cat! I'm no LOAN EXPERT, don't want to be one and don't want them DOING my job, which is selling Real Estate. Do I ask my clients questions? You BET! Do I ask for pertinent info, like their SS # to run a credit check. HELL NO. And without that (credit check) you have nothing but their word. Do I own a calculator? Ah, YES. But IT isn't to run numbers on my clients credit. I'll leave it to THOSE EXPERTS, like Jeff Belonger and other experts in HIS field of expertise.

Signed: Kat DeLong, REALTOR

Lenn, I must say that we've used lenders to qualify our buyers lately, but are considering changing. We're finding that they are almost all telling the buyers what and how to offer. The biggest thing they seem to be telling buyers now is to ask for $5-6,000 i closing costs paid by the seller. Some sellers will pay it, but not every seller situation warrants it. We are then in a spot - the lender said to ask for it as if it were normal and we are telling them it isn't appropriate for a specific situation. Doubt is raised as they think they are losing something. Time to get back to basics and qualify them on our own. Thanks for the timely post.

I always enjoy reading about the insight you have in the mortgage industry...you are miles ahead of 99% of other real estate agents (and a lot of mortgage brokers :)

Lenn,

Great data, many thanks. Bet you also warn the buyers not to subsequently max out the credit cards buying all new furniture for their new home!

Great advice. This is one of the first things I was taught after being licensed. My broker stresses this and I am so glad.

@ Catherine - huh? You stated - "What has CE real estate classes to do with lender guidelines? You can "underwrite" all day long with those ratios but they are NOT general lender guidelines. For example, hardly any lenders consider front end ratio at all. Most conventional lender guidelines are 45% back ratio."

Many lenders don't consider front end ratios at all? First off, I semi agree with your overall statement, but Lenn was merely making a point. Secondly, what lenders don't really look at front end ratios? I will disagree with that statement 110%. So what you are saying is if I have a 44% front and a 45% back, that I am okay? Oh wait, I don't have a rental history, my credit scores are 623.... and I really don't have much credit. And conventional guidelines for back end ratios are 36%.. even though you can go higher on the back. Yes, there is more to qualifying than DTI's.... but also giving out misinformation has created a lot of issues and part of the reason where in this mess. Just my humble .02.

Overall, I think Lenn's ratio numbers are very good to get the basics. Yes, many of us know that they can go much higher... but without having every detail that I explain in one of my comments above, I do think that's a great place to start.

jeff belonger

Hello Lenn, you make a good point in you post today.

Like Richard Weisser's comment above. I too have dealt with a couple of very reliable, as well as knowledgeable mortgage reps who are good at what they do. This is an established relationship over the years. I feel comfortable relying on them.

Good to qualify however ourselves.

Thanks Lenn, Hope your mother's day was happy and bright!.

Patricia Aulson/Portsmouth NH Real Estate

Yes, I agree with the comments left that you should work with a lender you know you can rely on to let you know things are moving forward and also if there is a problem. Aren't we all working together as a team to reach a common goal?

Lenn

I have always offered my realtors a kind of "lending 101 for realtors" class.

They never take me up on it.

I think realtors need to know enough about lending to spot the many pitfalls. It is what seperates the good agents from the other 85%

Catherine,

1st of all, before you POST something like these underwriting guidelines that by the way, have DATES FROM 2007 & 2008 on them...you need to check with the person who did the blog!

This is ridiculously large, and who is the Lender?? I am assuming it is Provident Funding?? or if it isnt them...is the company still in business?? What type of guidelines are these?? and do you seriously think that this is going to help?

Lenn chooses to do business in that fashion! If I WANTED to work with Lenn, or in this case could based on licensing...I would have to deal with her control issues! :) Just for the record, I do disagree with the way she handles things...However, that is her choice...wrong or right, she doesnt have trouble with closings! She also is a serious VETERAN of the industry and the LAST THING I would do is attack her or make fun of her...Maybe, education is better huh?? Maybe emailing her, rather than questioning her ability in a large forum on one of the more popular bloggers BLOGS here in AR is not the way to go.

Are you SURE that LP allows for Non occupying Co borrowers TODAY??? Did you see that last update is from 2007?? There have been several changes with ALL underwriting guidelines at ALL companies...so you better really be sure when you post something like this!

Hey, Lenn doesnt need MY help...she holds her own quite well! However, tact, and professionalism are important here as well.

Most lenders would agree that they would rather qualify the borrower, than have a REALTOR do it! MOST Realtors I KNOW, would agree that they just want to handle the home portion. I think it is VERY important to note that we as professional lenders stay on top of the program changes and guidelines MUCH better than any Realtor...that is of course, unless that Realtors doubles as a loan officer...and that is a WHOLE nother blog!

If your point was for the Realtor to do their job, and the Lender to do theirs...well, you didnt get it across and maybe people mis-understood. Putting a 5 page diatribe into someones blog is not the answer....Education & Trust building are.

Ask yourself, what did you accomplish today?

Lenn, nice blog. I disagree with alot of what you say...:) LOL...I really do...HOWEVER< you make some good points and it helps me with the learning curve of what makes a Realtor tick??

As always I appreciate your perspective.

Darin

Catherine.... 2 things....

you copied 1 lenders guidelines. You said most lenders. Unless you have 20 of the top lenders guidelines out there, your statement is misleading.
Secondly, I am now rethinking you first statement followed by your last statement. I should hold back in my comments, unless you want to talk about them over the phone. But I will politely say that you are 110% wrong in your statements. I just showed your comment to an underwrite of over 20 years of experience. How can my example of the 44/45% ratio be wrong? 1% housing debt? AM I missing something here? Or do we have the debt ratios backwards? The housing debt is the front ratio, not the back ratio. And there are some borrowers that don't have any other debt except for their housing debt. Yes, there is DU/LP, FHA scorecard, and GUS.... if buyers fall beyond of what she is doing, then she probably explains to them that they need to talk to a trusted loan officer in detail.

Overall, Lenn is making a point, not to waste time. If a borrower fits 3/40 ratios, and has assets.... these will in most cases get approved. Why can we justify this? Because I preach this part all the time... that we should be asking the borrower what kind of mortgage payment that they would feel comfortable with.... and not just qualify someone to the max.... end of story. Sorry if that sounds harsh, but you now lost me with the regs that you copied, when we were just talking about DTI's...

jeff belonger

John. That is indeed a risk, that the seller can close. One thing I've learned to do is ask. If we look at the tax record and see little light between what the seller paid and the asking price, it's a red flag.

Jeff B. You wrote: "Secondly, does an agent understand if the person gets paid twice a month or every two weeks?"

All I can say to that is "DAH". Besides, we compute annual income before we compute monthly gross.

Secondly, credit issues are not a problem overall. Folks know whether or not they pay their bills timely. The only agent who have buyers with credit problems are agents who don't ask.

Catherine

44/45 represents housing ratio/total expense ratio

Does equistar offer training?

Linda. Give my regards to your rocket scientist. On the matter of credit, if the loan officers did this any better than agents do, agents wouldn't have loans rejected at the last minute because of debt or credit issues.

Jeff. Thanks. 30/40 ratios make ME comfortable as a basis for computing price range. The operative word being range.

Catherine agonizes over minutia. If that minutia were critical, there would never be a loan officer who had provided a "pre-approval" letter who later rejected the borrower. We know that isn't so.

Catherine appears to specialize in snide. I believe she's talking to herself.

June. Thanks. I have no problem taking a buyer on a home tour without a pre-qual or pre-approval. It's simply a part of my marketing plan. I love to tour with buyers. Once we tour, they are mine, mine, mine. The worst thing that can happen is that you tour a few homes with a buyer who doesn't or can't buy. It happens. But, I do a pretty good job of "qualifying" folks before I schedule a tour.

Tammy. Experience is a wonderful teacher. You've learned that buyers of second homes are usually fine. I've learned to qualify folks and not get them committed to one lender until we know what they are likely to buy.

Also, I get the Financial Statement because it has all the questions mentioned by Jeff B, i.e., bankrupty, forelcosure, liens, judgments, etc. My Financial Statement has shown bankrutpcy info that the buyers forgot to mention. . MMMMmmmmm.

Thanks for the helpful advice Lenn. Always useful reading your blog posts. I gain a lot of useful information from your blog. Keep up the great work and best of luck to you.

Tony. We do that with them too. When buyers understand what the processes are, they are very strong buyers.

Richard. Thanks. There are no absolutes. My point here is that agents who can qualify buyers price ranges and ask the right questions are less likely to have contracts fall apart.

Bettina. Send them to me. I'll compute their price range, show them homes, contact a good loan officer when we're ready and go to settlement.

Rebecca. Wonderful. I'll bet you'll be much more confident in your buyers' ability to buy when you've looked at the numbers yourself.

Dean. Buyers never waste our time. The point here is that, even with the "pre-approval" letter, contracts fall apart because the loan officer wrote the letter or "pre-approval" without verifying information.

Margaret. Indeed, agents need to take responsibility to qualify buyers and sellers. The cost to our agents/brokers/lenders/buyers/sellers when a contract falls apart can be almost totally avoided.

Karen. I've got to save that hammer.

Don. WOW! Did you make a good point. We have fiduciary quite often with buyers and sellers. Would we accept a buyer on our own home for sale without looking at their fianncials? I wouldn't.

William. As you get more experience and more buyers who come to you already "pre-approved" and a sale or two falls apart, you'll learn these simple skills and be much more comfortable doing what you do.

Paul. I agree that it's good for a Realtor to know this stuff. Further, I believe that it makes us better Realtors.

Integrity. Thanks. We do work together when we know what we're doing.

Christianne. Me too. In fact, one of the paragraphs in my BA Agreement requires that the buyer provide the agent/broker, that's me, financial information as required.

Joe P. You wrote: It is easier to negotiate a better deal when the other side knows that the buyer can really close.

Sure, but how many contracts close because the lenders letter wasn't based on a full documentation??? Too many.

Mark. You're a pro. You are providing good fiduciary for your buyer or seller clients. Contratulations. Bet your contracts close too.

Kat. You missed the point of the post that sales fall apart because agent DID send buyers to loan officers, got worthless pre-qual. pre-approval letters.

Jim V. GOOD POINT. I too have read the "pre-approval" conditioned on "6% Seller Contribution" That's not a pre-approval. That's an outline for an offer. A pre-approval should NEVER be conditioned on seller help. We got those "conditioned" pre-approvals back in 2005-2006 and all we could do is laugh.

Don. Thank you very much. I love my buyers and I do a better job for them when I know what is going on.

Irene. Indeed I do. Don't even think about visiting a new car showroom. Don't open any new accounts. Don't do ANYTHING that would add an INQUIRY to your credit report.

I also carefully explain how the credit scoring works and how their credit score will go up or down based on the ratio (there's that word again) of credit limits used.

Lenn: As a lender, I can tell you that in this new market ... at times it IS getting close to rocket science. With 30 years in this business under my belt, there are currently more changes happening on a daily and hourly basis than I've ever seen prior. Situations are cropping up that I have never been seen before, are unexpected, and cause a deal to sour. I can gather all the information that I think was ever relevent and requested based upon past experiences, trying to meticulously prepare a transaction for underwriting and approval ... and still come up short with underwriters. With closings occurring the way they do now days, this can all happen at the last minute too.

Believe me, no one is more upset about those turn of events when they happen than I am. The customer is understandably upset, frustrated, and angry. Besides the call to my customer, I now in turn have to call all the others involved and inform them that financing is not going to happen with the loan written as we hoped, or at all. Obviously by having to do this I am upsetting many people and letting them down. Given that my own income is affected and I've spent a great deal of time on the file, I'm not happy. But, also looking ahead, I have most likely let down a referral source(s). That really hurts on many levels.

Possibly the hardest part is trying to explain how and why it all happened. Even with all the amount of media coverage given the current real estate crisis, the large majority of consumers that I speak with do not comprehend that the ramifications of the crisis might effect them on a personal basis. All the extra required documentation, questions, time it takes to put together a successful closing now? Many do not understand, nor do they wish to comply. They thought the crisis was happening to everyone but them.

How could the financing get to that point and then fall apart? Again, it's a simple answer, but one that people are tiring of hearing. Where once everything got by in underwriting ... now nothing gets through without intense scrutiny, sometimes to the point of absurdity. To say I personally am frustrated, angry, and upset at the negative outcome is an understatement. The best I can hope for is that everyone involved in the transaction ... customers, realtor, attorney, etc., ... know me well enough to understand that I am a caring professional, that I always try to do my best and trust that I did everything possible to move towards a successful and closed transaction. At these times, I also pray that my referral partners remember the 99 successful transactions I delivered and not allow the one that could not happen to get in the way of our future relationship.

I totally welcome and approve of my realtors/referral partners assisting in the pre-qualification of a potential buyer. Whatever insight and knowledge they can gain contributes to the possible success of the deal, possibly alerts of upcoming issues, and just makes the transaction much easier moving forward. Thank you Lenn for taking your pro-active stand.

Hi Lenn

A very timely post thanks for sharing the information.

Good luck and success

Lou Ludwig

Kim. Give your broker a pat on the back. When I hired a new agent, we spend hours learning qualifying and I even gave them home work.

Patricia. Thanks. It was a lovely day. I rely on loan officers too, but I also rely on my own experience. Our jobs are different.

Milissa. Sure we work as a team. However, my job is to write contracts and I want to know that my buyer qualifies and I need to know my buyers' financial.

Tom B. Thanks for that. I agree completely. I have arranged meetings with local loan officers for them to hold qualifying classes for our agents. Then I reinforced it with more examples on a regular basis. We sell a lot of real estate. No last minute surprises.

Lenn excellent post and it's the way we always 'used' to do it before and quite possibly again. I prefrer to rely on my excellent LO's to handle this, for the most part. But I will give this some serious thought.

Thankyou!

Thanks Lenn. Since I mostly work with sellers I deal with this too often. Someohow near the end; if a short sale - pretty much right after I get the approval or with a regular sale near closing - I get the dreaded call / email or fax that their buyer just doesn't qualify. I reblogged this to share, thanks.

Jeff. We don't have any disagreement at all, at all. You do your job and I do mine. However, if I require that a buyer provide me with a Financial Statement, I do so to insure the listing agent that we have a good buyer. I'm not replacing the loan officer. I don't do loans. I sell real estate. However, considering some of the letters we get and considering that so many ActiveRain folks write about failed contracts, which, if they followed my practices of knowing your buyers' finances, wouldn't happen, my practices are sound.

Loan officers want to be the first or early contact with buyers. Fine. I understand the marketing concept there. However, when the loan officer tells the buyer that they can't get through underwriting or your debt ratio is too high, it's the agent that's got to get their earnest money back.

Excellent Advice!! Thanks for posting.

Darin. Thanks. We have no disagreement. Qualifying a buyer IS part of my job. Getting a loan approved is part of your job. You don't sell real estate and I don't loan money.

Some day soon I'll write a post about STOVEPIPING.

Very wise advise. I have never done it on the REALTOR side, only the lending side, and ask the right questions on the real estate side, but now having read this, I will be taking it a step further. No 60% DTI's!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Or 50%, although I have seen the automated desktop underwriter accept a 50% DTI and about fell over.

Gene.

You write "at times it IS getting close to rocket science."

Isn't that the truth. We're moving a loan package this week to another lender because the underwriter turned our buyer down because of the "investor flipping" rules. I had to go back to the drawing board. '

We had another one last week with the "declining market" syndrome.

This business is more complicated than at any time in history and it behooves every agent and broker to understand financing if they can. If they don't want to bother, fine with me. Our contracts will close.

Heather. Smart move. I spoke with a loan officer a few weeks ago who had a 63 DU approval. I simply advised him that we would go to a lower priced home. When I told the buyer what their payment would be and considering the home they wished to buy what the cost of maintenance for the first year was likely to be, they wisely opted for a less expensive property. We closed on a property that was $100,000, 20% less than that for which the lender approved.

Monica. My pleasure. Thanks for stopping by.

Susan. Ah ha! Thanks for that. What I seek to avoid is the "last minute calls".

Anna. I rely on good loan officers for the lender's letter. However, I follow the practice of "trust but verify".

Lou. Thanks for reading.

There are a lot of buyers you run into that you just wonder if this is going to work, so I ask them a lot of questions and figure out if its worth moving forward with them.

Chuck. Me too. Every single day. I know what to ask, qualify them and get them to an agent who sells them a home.

Works for me.

What a fun read! You know, I don't think I have ever disagreed with one of Lenn's blogs/titles. When I first read this title I disagreed UNTIL I thought of it this way: The agent should know if the buyer is qualified. (Period). Lenn did not say she can qualify the buyers for the LOAN. She said, qualify the buyers for her spending time with them and accepting their offer. The reason she said this is because she knows, and I know, there are a blue zillion idiots in the mortgage banking industry and they work for every conceivable type of lender, bank or broker. No mortgage company has a no dipstick policy. Lenn has almost certainly had pre-qualifications like the people at Countrywide operate on when they cold call you and tell you they can refinance you for 4% with no closing costs. (Hack, hack, cough, spit. ) Now for those of you in the SALES side what Lenn says makes perfect sense when used properly. Reminder: there are a blue zillion dispticks in the real estate sales industry, too.

True, no real estate agent, 1000 years of experience or 2 hours of CE training, can actually qualify the buyer for the loan. HOWEVER they can have enough sense to know if the buyers earn $50,000 gross household income they probably aren't getting qualified for a $300,000 home. Lenn is not saying she has the authority or expertise to approve the loan, she is saying she has the intelligence to know the difference between "no way in heck", "maybe" and "probably". She's saying if she has buyers show up with a - letter in hand it means nothing to her. Combine the letter with some knowledge about financials and you can make an educated determination.

I'm sure Lenn doesn't look at the people and immediately say, "You'll never get a loan." But I also bet she doesn't waste much time with people who don't stand an ice cube's chance of owning that home. As a reputable loan officer I would still like to look at their application, credit and documentation just in case one of the thousands of different available programs may work for that borrower on that particular transaction.

Lenn: I agree with the gentleman from Novation Mortgage. It only makes sense for you to know as much as possible in efforts not to completely waste your time. Unfortunately, there ARE some customers that cannot be helped, now or possibly even in the future.

However, I do know that in many cases, realtors ... just as loan officers ... spend time cultivating clients. That means they help customers that cannot buy now because of poor credit, lack of credit, etc., become possible buyers tomorrow. Good realtors get these potential buyers to lenders they know will assist them in turning bad issues around so they can buy a home in the future. Yes, they take time and effort, but eventually it pays off for all concerned. A home is sold, a loan is made, and you have a happy new customer for both realtor and lender ... and a great referral source because they know you made that effort and showed they were more than a "number".

Personally, I feel I have gained and retained customers for being honest with them about their present issues and situation and then offering to guide them through it. Smart, professional, and caring realtors do the same and have the successful closed homes to prove it.

Thanks Lenn for a thought-provoking piece. It got alot of us thinking!

Gene Mundt, Professional Mortgage Banker www.genemundt.com Chicago Bancorp

I see way too many Buyer Agents wasting time chauffeuring buyers around, then complaining when they dont get the loan.

I dont think its doing the buyer any favors either - as if you uncover that they really need a little more work - or time - to qualify - then you havent wasted their time either.

Sheldon

Lenn~This is excellent and timely information! I so appreciate this post and I am one of those control freaks that doesn't trust lenders to do their job...I am on them like white on rice! As an aside...I taught an online marketing class for an office that I broker today and we spent a lot of time on Active Rain, it's value, importance, use and features and my agents were so impressed that the points leader on AR was none other than Lenn Harley and not a 21 year old Gen Y agent!!! I told them they would be wise to read your blogs often and make AR a daily part of their real estate routine. Thanks for your contributions to AR!!!

Lenn, I only read some of the comments above. I agree that Realtors need to be more proactive with their buyers when getting them qualified. I do use good lenders that help me out a lot.

Kristi. Smart practice. I just believe that it helps us to understand financing. Helps our buyers too.

Hi Lenn,

As a mortgage professional, I have zero issues with a Realtor needing to address finances beforehand. In my opinion, double checking things is not a bad idea. I would caution Realtors, though, to be aware then of changing programs and guidelines. At least, perhaps, a disclaimer that they need to speak with a qualified mortgage professional. Good post!

Jeani. Thanks. I greatly appreicate your comment. I love to teach new agents and one of the first things they learn is how to qualify buyers.

Clearly, when an agent's eyes glaze over when talking numbers, I introduce them to some good loan officers who will help them qualify buyers or they can always call me.

Sheldon. Or, the agent could easily learn how to do it themselves and not waste anyone's time.

Gene. Timely message. I had some buyer last August that I knew were not ready. I did take them on a tour of homes because I love to have buyers out looking at homes. It helps me guage their motivation, likes and dislikes, etc. However, WHEN I GOT THE FINANCIAL STATEMENT, the DTI just didn't work. So, I got them together with a good loan officer who told them how to get their scores up and qualify. We closed on their wonderful home last month.

They purchased a home 5 minutes from my house.

Their new home has a pond and I have a fly rod.

Sarah. Thanks. It isn't necessary for a Realtor to know all of the programs to qualify a person for by simple DTI ratios, especially if I stay on the conservative side, which I do.

Ken (Novation). You are smarter than the average bear. You are absolutely correct.

See, it's this way. My time is very valuable and so is the time of the agents and brokers in my network to whom I provide 99% of their business. I qualify folks over the phone or by Financial Statement so we can have a reasonable price range and to determine if we should send them to a loan officer first. If the buyer is qualified, we are ready to hit the road. If they are not or I am not sure, they are referred to a loan officer immediately. I make such loan officer referrals about 6-10 times a week. However, I refer about 25 buyers to agents/brokers every week.

Of course I don't qualify them for loans. I qualify them for a tour of homes. Makes sense to me.

Why don't I sent folks to the loan officers first???? Easy! Folks don't contact me about getting a mortgage loan. They contact me about buying a home. That is always my focus. Qualifying buyers is simply part of the initial steps.

Thanks for the great advice Lenn. Agents should also use basic common sense too - if red flags are going up in the agent's mind as they are working with them, they shouldn't be ignored. I've done that - and regretted it.

Lenn! Smart thinking!!! I understand your point totally. When you have worked through an especially hard and demanding transaction with a customer, they often-times become your most ardent supporter and a friend. They might also (as in your case) become your neighbor ... so lesson learned. Treat everyone as though they may become your neighbor!! They just might be somday ....

Best of luck to all!

Gene Mundt, Professional Mortgage Banker www.genemundt.com Chicago Bancorp

Kim. Indeed. We regularly read about "deals that fall apart" and they appear to me to be "deals that shouldn't have been written".

I work a lot of land deals here in the great state of Texas...uness they are cash buyers or seller financed...forget it!

Jeremy. Slightly different market. Our market is folks today is folks buying residential real estate and in moderate price ranges.

Gene. I had one couple that found a wonderful home on our first trip out. Then when we sat down to write the contract, when I got the Financial Statement, I saw that they were not ready.

One year almost to the day, they came back to me after getting their credit up to date and aging the accounts, they qualified and I sold them a home.

Folks appreciate the good advice and stick with you if they know you know what you're doing.

Lenn: Great advice to buyers agents, as well as to loan officers: As you can imagine, our top producing buyer agent ALWAYS qualifies the buyer, which is why she was able to close 5 deals last month. Of course, she was, up until February, also practicing as a loan officer, so she understands the financial aspect of the transaction better than many.

There is still an issue of managing expectations, and this advice you give goes a long way to that end, not only for buyer agents, listing agents and LOs, but for the buyer as well. We can only hope the listing agents are as savvy.

Great post as usual.

Paul. Thanks. Most folks don't understand my business but I do consult with many listing agents. My advice to them and my practice is to require a Financial Statement with all offers, along with a lender's letter. If the Financial Statement doesn't show the buyer qualified, the loan officer needs to "sell" that buyer's financial ability.

Usually, the fact is that the loan officer hasn't verified anything and often has not reviewed the income or debt. Just pulled a credit report, looked at the scores and spewed out another letter.

I think the reason more agents don't do this is because they think if they ask these hard questions that their "client" won't want to work with them. And in this market this tendency is even more pronounced.

Mark. Agents who know their business and convey experience to buyers have absolutely no problem getting qualifying information. Buyers are usually grateful for the insight into what it takes to get approved.

Lenn- THANK YOU! My sentimets exactly. I have even offered to do these calculations for buyers agents who don't have a clue!
We just got an offer and the agent says, my buyers are approved by underwriting. Good, I say, send it over!
It reads that their VOD has not been verified, that their tax returns have not been turned in an reviewed, and that their bank statements have not been turned in! This just happened today
Nestor was fuming! You call this an approval? Based on WHAT???

We also get this: their loan officer won't give them anymore than a preapproval until they have an approved contract with a seller!

Go get another lender!

Now we make them all get approved with Jeff Belonger and they can use whoever they want to after we know from Jeff that they can close.

We have tons of frauds in Miami who come up here to buy and then who try to get away with lying on their loan apps, but they don't understand that they are going to get busted in underwriting. We have had loan officers lie all the way to closing on our listings! Katerina

Lenn, Fortunately in my market right now "cash is king". Prices are so low about 90% of my deals are cash. I don't qualify buyers myself but do have a couple of really good MBs that do it for me. I can take what they say to the bank.....literally.

Bryant. You are practicing real estate sales in a unique market. Ours is pretty traditional.

Katerina. Absolutely. I have absolutely no problem with a listing agent requiring that a buyer be pre-qualified by a selected loan officer. However, I do believe that if the offer is well written, a decent lender's letter which states that the credit report has been reviewed and income and debts verified is presented with the offer AND a Financial Statement is included, the listing agent doesn't ask for the second approval. We seldom get asked and I never have.

I had a mortgage broker tell me I had no right to request detailed financials from a self employed buyer. He said it's HIS JOB not mine to do this. I disagreed with him and did the numbers anyway, which showed this guy was way over his head and could not possibly shoulder the loan he wanted.

PS--I am with Lenn on the post above. I do not think the listing agent has the RIGHT to request a particular lender prequal a buyer who I am working with. I work with many high end executives who would take offense at this.

A firm with a one-stop shop in town requires ALL BUYERS be prequalified with their inhouse lender. I view this as an attempt to get the financing end of the deal.

Lenn - I have had this discussion with a number of B/Os any many tell me that they don't want their agents going "this deep" into a buyer's finances. They mention "liability issues" and "scope of services" as defined in the buyer agency contract. I agree with you - basic qualifying shoud be a a standard business practice.

Lenn - this shows once again why you are running a successful buyer agency - always love your words of wisdom!! Thanks

Lenn - As always your posts are so informative and full of facts. I won't step into a car to show properties to a buyer without their being pre-qualified first. To not do so, is to set yourself up, the buyer up, and the seller too. Why waste everyone's time.

My lenders only meet with a buyer AFTER I have pre-qualified the person(s). I conside 30/40 ratios as marginal and will get all credit report info for the buyer and run it before we waste time.

Lenn- I always love your posts. So direct and to the point. You prequalifying buyers your way is no different than you deciding what listings to take. Just because you CAN doesn't mean you SHOULD. I have had many a discussion with a borrower's loan officer when they provide some limited preapproval that has nothing verified at all. I will not go out with a buyer unless they are preapproved by a legitimate lender and have a signed buyer agency agreement..... without those, I don't consider them serious buyers.

Lenn - glad to see that you are feeling better. amazed at the discourse. i don't lend money. i also don't waste my time driving folks around showing them homes with wonderful kitchens if they can not purchase a toaster.

It would seem to me that the new breed of agent and lender has some sort of mind block when reading good advice.

Those that question your practice might stop and consider that there is a reason behind your longevity. If agents want to drop in and drop out, they can certainly rely on anyone else to handle the nasty details of knowing what you are doing.

jmac

Lenn- I am not a lender nor do I claim to know all that a lender knows. But I am a realtor and a professional so I do ask financial questions and use a financial form that Buyers fill out. Its just good business and adds value to our relatonship. I am not down and dirty qualifying them nor am I talking loan programs or running credit reports. I am not even pre-qualifying, looking at bank statements or W2's. Instead I am getting a financial 'feel' so we can discuss if now is the right time to buy. It begins the professional journey we will be traveling together and opens communication beyond the 'must haves and must nots' in a new home. It is not rocket science just good common sense. Plain and simple.

I find your post ignorant, and completely off the mark. Being a mortgage broker, I'm here to tell you that it's actually NOT simple at all. Do you know the most recent guideline changes that affects req'd PITI reserve requirements, or the most recent DO requirements when it comes to tradelines in dispute?

I'm waging, ma'am, you in fact do NOT.

If you're going to remain in this industry, ALL OF YOU must realize we are in a NEW LENDING PARADIGM. You can try to figure out DTI, and I wish you much luck on getting that math done correctly based on the limited education you get in your CE class, but it is NOT going to guarantee that the deal will close.

Listen, guidelines are changing daily. Our own A/E's can't keep up with the changes, and there's certainly no way YOU can. Everyone wants the deal to close. You're not going to get a guarantee until it funds, regardless of the useless forms you ask the buyer to sign, possibly jeapardizing you deal.

Loans are being rejected not for credit, or DTI, or simple, safe, obvious reasons, ladies and gentelemen. They are being rejected because of finely nuanced changes that you will never see it the beginning states. By doing this, you're only adding more strain on a an already extremely difficult process.

If you take away nothing else, understand that we, as brokers and mortgage professionals WANT THE DEAL TO CLOSE, but everything is changing constantly. All you can do is stay in communication, and hope for the best.

Good night, and good luck

Your not a real estate agent your a glorified taxi cab driver. Before you post about how "easy" it is to qualify a buyer you should have some clue as to what it is your talking about. God help your clients!

Most folks don't understand my business but I do consult with many listing agents. My advice to them and my practice is to require a Financial Statement with all offers, along with a lender's letter.

Lenn, I'd love to be able to ask for a Financial Statement with all offers, but wouldn't the Buyer's Agent have issues with that? If I received a Financial Statement from the buyer and my client wanted to see it, wouldn't I be obligated to share it with my client? I'm not sure from a liability standpoint where that leaves the Buyer's Agent. When I have a preapproval letter that I'm not comfortable with I recommend that the buyer be preapproved by a mortgage broker that I trust. In that way the financial info stays with a professional with a fiduciary responsibility to the buyer, but I get the info I need to make the right decision for my client.

On the buyer's side, I am very lucky to have a trusted lender I can use for pre-qualifying. I've seen so many changes in guidelines that I wouldn't want to try to keep up with, so I gladly delegate to the lender.

On the seller's side, I see how having a basic understanding is needed to protect the seller. For me, it's a phone call to the buyer's lender, then a phone call to mine to verify if I'm not sure.

Lenn,

Who knew you would grow up to be such a good writer. OOPS now called Blogger.

She who wants to succeed should be prepared to give real value AND keep control of the transaction. By pre-qualifying you REALLY get to know your customer and be able to HELP them make the right decision for them. THis is huge value and when done professionally creates super glue loyalty.

To start a discussion about finances why not ask "what payment would you feel comfortable making." Add taxes and ins to their figure, multiply by 3 and ask is your gross monthly income close to that number?

Do the rest of the basic pre-qual right then.

Create real value from the beginning. When you do this you are looking out for your best interests as well as theirs!

I just paused to read Martha's comments above. I kind of redundant here Martha! I salute you.

Another good post Lenn!

Seems like a 1/2 inch drill bit was used on that nerve.

I'm fortunate enough to have been around financing for a good part of my life which makes me question many things with buyer offers and in reviewing the pre-quals or pre-approvals. Though I will say many changes these days are surprising even those who thought they understood the rules of financing.

Lenn... first, your posts are the best. I love your matter-of-fact voice of experience. It means a lot, and I read everything of yours I can.

On this issue, while I was reconnoitering my computer (another story), the blog from "not a moron" appeared, above. It is relevant to my sheepish, but well-experienced disagreement with you on this issue.

When I came out of real estate school (six years ago), I did the math (we use 28/36 here in NC), but I was the only one in my small market doing so, and I found out why: too many times my work was for naught because we didn't run a credit check. All too often, I had wasted my time. This didn't last long, though, because I also "got" something that was drilled into me in school: "you're NOT an appraiser; you're NOT a lawyer; you're NOT a home inspector; you're NOT a mortgage broker."

During that first year, I had contracts fail for loan issues, and I had contracts close with no problem. I quickly learned which lenders could/would actually close the loans they pre-approved, and which ones were wasting my and my clients' time. And that was back when the rules weren't changing daily.

I now no longer ever attempt to qualify a buyer myself, but I insist they get qualified from a trusted mortgage professional (there are several here and I give my buyers all their names, let them choose, and am confident when I get a detailed pre-qual letter from any of those institutions) before I ever waste anybody's time with showings. I explain this to my buyers in detail, make them understand that this is the best, ONLY, first step in them becoming homeowners. In five years now, I've never had a single contract failure because of the loan.

I still of course get into the financials with my buyers, but it's more of a "let's do your math: let's see what you can really afford regardless of what the bank says." We look at the GFE, talk about their savings and what they house they want will require. I talk to them about home ownership, what if the heat pump goes out in six months or the septic fails next year; I caution them about depleting their savings to pay closing costs, all that. I recently reset a buyer's search to about 25% less than what the lender said they qualified for, even in this strict lending market. I want my buyers to be able to afford the house for as long as they want to.

There's just no way I can do a mortgage broker's job. I can do a title search too, but I leave that to the attorney, just as I leave the mortgage to those professionals.

Lenn ... Thanks for this good article about qualifying homebuyers through their finances.

We also have experience from anoother business prior to real estate and have learned that you must ask questions of your clients ... and continue to ask questions through the process. If a buyer thinks we are getting nosey, that's usually when we are getting close to the truth, which can make the difference between a successful and a failed deal.

Great post on the fundamentals of qualifying. It's great to be back to basics. I'm always surprised that many buyers still don't know that lenders will decide how much house they can afford based on the no more than on quarter to one third of their income rule. That's a big rule of thumb to miss.

It's a great idea to give them a financial statement form. I have a payments form that will help the buyer evaluate how much the total payment will be (PITI+taxes+insurance or PITI+taxes+common charges) plus utilities costs. But I'll have to evolve it into a full financial statement. Another simple yet brilliant idea to steal from Active Rain.

Thanks for taking the time to write this!!

Another great post from Lenn ! Very good information. I have started doing this recently especially on short sales where I have to put so much effort in. I had to tell a buyer's agent her client was not qualified to buy the home based on the financial information I received. I always call the loan officer and scrutinize an LSR ( prequalification letter ) and not afraid to ask for documentation. She got upset at me for not submitting it to the lender. I explained that just because is a short sale and lender has to approve doesn't mean i don't have duty to the seller to advise if the offer is good or not.

Lenn, I enjoyed reading your article. but everybody's feedback helped put in perspective the challenges that are part of every transaction. Bottomline, it takes communication, competence and cooperation between all parties in the transaction. I understand where you, the realtor, are coming from. Too many deals that fell apart at the last minute over something that probably should have been discovered early in the process so how do you trust that the loan officer who wrote the "letter" knows what he/she really is doing. A lot of them use form letters. Sometimes, who the buyer uses for financing is outside your influence. These LO's incompetence make my business tougher; having to convince you that piece of paper is legitimate. My preapproval letters are custom to each client, defining the terms, the documentation I reviewed and the systems I used to preapprove them and I also include any contingencies that could impact the approval.

I may be off base here, but my experience supposes that the persons that create the most problems in our respective industries tend to be the ones who care more about themselves and their paychecks/commission checks then taking care of the customer. They don't understand the long term benefits of truly putting the clients' best interest ahead of everything else! Some of my best friendships and relationships started with a loan application. Enough said (for now)!

MAY

Luxury Home Cross Qualifying

When I get a call to show a luxury home, I request that they send me an LSR (lender prequalification letter) or a bank letter. It must be done with compassion for the buyer's agent, or their reaction is "in this market?"

Yes, in this market. Any buyer over $1 MM has to provide 30% + equity, and many simply don't have the resources, although they could qualify for anything 3 years ago. If buyer's agents have not qualified their clients, they aren't allowed to see my client's properties. The serious ones are prepared with the necessary evidence to purchase.

WOW! I just could NOT lay off this now! It is too hilarious!

LENN, I hate to say this...but today, I received an email from WELLS FARGO that they call an UPDATE and NEWSFLASH TOPICS!

This document has 45 pages, 27 items updated, and about 1 hour of solid reading! This was JUST TODAY! I get at least ONE of these every single day.

These are the things that were covered JUST TODAY! This one was especially bad !

Multiple Loans to One Borrower (Multiple Financed Properties) Policy
- New Program Code on Broker's First® Web site for Government Loans
- FHA Fields: Added on Broker's First® Web site Beginning May 18
- FHA Expansion: CLTV Increase for Rate/Term Refinance Loans
- FHA Enhancement: A New Direct ExpressSM Message
- FHA Disclosure: Energy Efficient Mortgage Fact Sheet Updates
- VA Enhancement: LTV on Rate/Term Refinances
- VA Sales Contract: Must be Provided to the Appraiser
- High Balance Conforming Loan Program Change
- Correction to Minimum Loan Score Requirements for High Balance Conforming Loan Program
- See Your Transactional Level PerformanceWorksSM Tier
- WFHM/WFHE Market Classification List Update - New Jersey and New York Counties
- Kansas City Area Counties Removed From Conforming Market Classification List
- Home Equity Updates
- Home Equity Loan Disclosure Changes Impacting Closing Date
- New Mortgage Relationship Pricing Discount, Discontinuation of ACH Discount
- Verification of Mortgage/Rent Requirements
- Continuance of Income
- Reverse Mortgage Income Policy Change
- Unusually Low Mortgage Payment Policy Change

Lenn, thanks for ok'ing the link to my pre-approval explanation~! people can click HERE for it!

While I think people are missing the point a little bit here, I did want to point out that I get at least one of these EVERY day, and we have 7 funders...That means, at least 2 hours on average EVERY single day...of education I get JUST from the email! Hence, I do agree with "Not a moron"..but I DONT APPRECIATE your first line! You made your point very well, but should delete your first line. That was uncalled for! I also AGREE with Catherine Coy's comment to some extent, just believe that she could definitely find a more professional manner in which to approach things!

I believe there is an ulterior motive here, and it is ironic that "LO" leaves a comment RIGHT AFTER all of these! LO, my friend, I am sure you can find better things to do with your life than leave comments like that. You sound angry and envious. No way to go thru life!

It is my understanding that LENN likes to "qualify" her buyers...What this means to me, and what I get out of the blog...is that she wants to make sure that the people are looking at a house they can afford. That way she is servicing them by showing them something they WONT get their hopes up for and not receive, as well as not wanting to waste HER time by showing them things they CANNOT afford! Let's face it, you show someone a 190k house, and a 100k house, which one do you think they are going to like 9 times out of 10.??? If LENN is OFF on her income calculations by a little bit, or misses a wage garnishment on the paycheck, or misses the child support they are paying, or calculates the weekly income x4, instead of 4.33, that is her problem...But, that at least gives HER someplace to start with her buyers!

Lastly, Catherine, I wanted to address your comments towards me...Sorry Lenn, cannot resist. I didnt take anything you said as truly negative, you just badly missed the point! I only addressed ONE SMALL ITEM in your underwriting guidelines that you posted...as Lenn said, you are dealing in minutia...However, nowhere was there a discussion about investment properties.. Why would someone buying a home, want to be subjected to INVESTMENT PROPERTY LTV's, HIGHER INTEREST RATES, and bigger adjusments, just to take on a NON-Occupying co-borrower>??? You knew that was not what we were talking about. You never told us Who's guidelines those were, nor if the company was still even in business! You are right though that WE are the professionals, and our job is tough to stay on top of! I think we as Mortgage Lenders are underappreciated, and misunderstood! Rather than argue about it though...educate!

It was interesting finding you on about.com...and I wonder about your true, honest intentions. In the end, I do agree with ALOT of what you are TRYING to convey Catherine...You are just struggling with the way you present yourself. You too, sound bitter and angry...I like many others, am also tired of arguing and fighting with the Liberal news media, Realtors, as well as consumers...and tire very easily these days of defending what I do for a living. However, I dont just randomly go after people, you know why?? BECAUSE OUR COMPANY IS BUSY and I dont have time for any of this because we are CLOSING LOANS!!!!

Catherine, I have 22 years in the business, In 2003, I personally closed 347 units. In Wisconsin, that made me the 3rd largest producer in the State. I have underwitten over 12000 loans. I have been an AVP of a bank, Branch Manager of a large Mortgage Retail location, as well as a Area Manager with multiple offices. Nonetheless, the only thing that makes ME, is experienced! I am always OPEN to discussion about anything, and when WRONG, I will be the first one to stand up and support the finding. However, do not confuse that with the resolve to do what is right! We have a delicate balance and slippery slope we are contending with...it is negativity like yours, that creates the rift...rather than "seal the fissure"! Ill go toe to toe with ANYONE over experience, because in the end all we truly have is our reputation, and the job we have done for our customers.

EDUCATION IS THE KEY LADIES & GENTLEMAN!!!!!! We need to be willing to accept change!

Thank you and good luck one & all!

Darin

Lenn - Don't think I've come across a realtor taking the pre-approval bull by the horns, so to speak. Constraining the back end ratio to 40 is rather tight, when DU will allow most scenarios to be approved at 50. However, in the event that some liabilities are missed, it could provide a buffer against the unknown.......I personally would welcome my realtors to take this approach for all the reasons you've outlined.

And on the flipside, if the agents involved proactively communicate the known property condition issues before a contract is signed, especially when going with VA/FHA loans, the chances of closing on time are greatly improved! I've been asking my agents to forward me the home inspection results so I'll know what the appraiser will be seeing, and what items the UW will be concerned about. Though it would have been nice to learn about these items before going into contract, we might have up to 30 days to remedy them...

Thanks for sharing one of the secrets of your success, keep 'em coming!

warmest regards, Jeff M

We spend time qualifying our clients as to motivation, timing, commitment, etc - -seems only reasonable to me that we spend time qualifying them as to financial ability, history, price range they are comfortable with, etc, and do a little reality checking! The range of comments, and opinions has been interesting. The emotions have been fascinating. thanks for a good read Lenn -- and dialogue that you started.

Lenn and Erica- You are not in South Florida! I can not tell you how many actual approvals not prequs we get from buyers through their buyer agents that are out and out lies, fraud and deceitful. I also can not tell you how many fall apart when they are south of palm beach county. We cringe when we see their area codes because these agents drive 2 hours up here to show properties and write incompetent offers and bogus approvals.

So we do ask and expect if they want to make an offer on one of our listings, I want to know from Jeff that they are for real before my seller loses their home in a foreclosure because they are incompetant.

I will say that there are good agents down there, but they would refer their clients to agents here who know our market, like Janie Coffey is a great agent in Miami. No offense to the good agents and loan officers down there.

Also, bear in mind, that no one uses the buyer financial form that our board has made available. I insist on it, I have lost one buyer's agent who refused to have her client will it out.

Erica- I work in the luxury market and either they get an approval from our preferred lender but mostly they pay cash. The cash buyers all must submit to us their attorney's letter of funds available to close or a certified letter from their portfolio manager. We have never had an issue with anyone being offended by that. They understand that we are running a business not running around. Katerina

Darin.

You wrote:

"If LENN is OFF on her income calculations by a little bit, or misses a wage garnishment on the paycheck, or misses the child support they are paying, or calculates the weekly income x4, instead of 4.33, that is her problem...But, that at least gives HER someplace to start with her buyers!"

Sorry Darin. The Financial Statement I use includes questions about garnishments, child support, etc. HOWEVER, you miss the point. I'm qualifying folks to a PRICE RANGE, not loan approval. That's your job. It's the loan officer that messes up doing their job that causes contracts to fall apart at the last minute.

Further, an agent who doesn't understand ANNUAL income needs to go back to 3rd grade. I believe that's about when I learned that there are 4.33 weeks in a month. Don't assume that I don't understand ANNUAL income divided by 12. My market place includes home buyers who receive 26 paychecks a year and some who receive 24 paychecks every year. I don't know why loan officers love to write such trite facts when trying to demean real estate agents/brokers who have the audacity to speak with home buyers about their qualifying ability before spending 100 hours showing homes.

Far too many loan officers consider the average real estate agents to be mere chauffeurs, too ignorant to perform a simple qualifying calculation. Yet, we are the entity with fiduciary We are the entity with a license whereby the consumer can file a complaint if they believe that they can be harmed financially by a real estate licensee. Where does the home buyer or seller go to seek redress if a loan officer fails to provide the service they agreed to provide within the dates in the contract? Where does the consumer go when they have spend 6 weeks waiting for settlement only to find at the last minute that their income to debt ratio is now too high??? HOW MANY LOAN OFFICERS TAKE A LOAN APP AND THEN turn the file over to a processor????? Who is responsible for monitoring the deadlines in the Contract of Sale????

In the past 15 years since loan processing became fairly automated, I've never had a loan officer contact me and say "Hey Lenn, I see that you need this LOAN COMMITMENT by next Tuesday". Or, "Hey Lenn, I see that you need to have the appraisal contingency removed by next Wednesday". I'm the one contacting and, yes, harassing the loan officer about deadlines in the contract. I have to agitate to meet contract deadlines regularly. Which is why I refer home buyers to loan officers who don't wait until the last minute to give us the documents we need for contract compliance.

If there is a last minute glitch in the loan approval, who is going to be on the firing line with the seller's agent??? The real estate agent, that's who. Yet, we're supposed to send the buyers to a loan officer to determine a price range. Nonsense.

Loan officers cannot expect us to take the grief when they screw up and yet treat us like imbeciles who can't do a simple calculation (with a calculator no less).

Not to worry. Sooner or later, every home buyer will be referred to a loan officer. Or, they will already be working with a loan officer when they come to us. We don't really care when the loan officer is selected. We do care how that loan officer performs when they have the loan to process.

That's our job whether loan officers like it or not.

Alexsandra. Thanks for your comment and joining the conversation.

Katerina. Interesting comment about the cash buyer. If I'm a listing agent, I will require documtation to verify the cash available to close. Further, since the "walk" risk is higher for cash buyers than buyers obtaining financing, we also require a higher earnest money deposit for cash buyers. HEY, that's the subject of another post. Mmmmm.

Many will say that the listing agent has no interest in such things. I believe that, IF THE BUYER EXPECTS THE SELLER TO TAKE THE PROPERTY OFF MARKET AND NOT ENTERTAIN OTHER BUYERS, that buyer should make the seller comfortable that the contract will close.

Agents who believe that they can practice good risk reduction without knowing buyers financial ability to close or seller's ability to convey good title are at serious risk.

as i have always said

the letter is only as good as the mortgage person it comes from

meaning-if loan officer is a trustworthy person who has a great track record than great..............otherwise you are justrolling the dice

up until a week ago we were gettingDU approvals but loans getting killed after the fact because borrowers couldnt get MI needed

a good LO should have knownthat and be keeping up w guidelines

One of the most valuable blogs I've read on AR, including the comments! If only there was a tool available along the lines of a "Truth Meter" to sort out the "buyer" who is not only not telling the truth to the Realtor about income and debt, but also is dishonest to the mortgage company on the pre-qualification. I've just very recently had to learn the lesson the hard way about the real value behind a pre-qual letter and the answers provided to me on the qualifying questions. The "buyer" was not honest with the mortgage rep nor with me. Before writing that contract, I will insist on a "hard copy" of proof of income and proof of funds. Any further advice on this topic, and techniques used by other realtors, is very much welcomed!

Jeff M. Indeed. I know that I'm on the obsessive fringe. However, I believe that it's an agent's job as a fiduciary to look at EVERYTHING from qualifying a buyer to looking out for defects in a property. When we preview a property in which our buyer has an interest, we do several "walk-throughs". First to get a "feel" for the house. Then to look at value with comps. Then to look at condition.

It's surely a lot more than walking through a house and saying "I'll take it".

Brian. Good point. In the luxury home price range, I have a series of questions to qualify. Thankfully, I have learned to ask questions about financial ability without insulting prospective home buyers. Much of what we do results from experience.

Darrel. Thanks for your comment. You're right, of course, that our experience guides us when working with buyers, sellers and loan officers. You're also right that many of our buyers come to us already commited to a loan officer/company.

Elena. I had to tell a buyer's agent her client was not qualified to buy the home based on the financial information I received.

GOOD FOR YOU. Can you imagine the time you saved the buyer, the seller, the seller's lender and the buyer's agent simply by doing your job.

Agents are not ostriches. We have a brain and it pays to use it.

It is actually a pretty simple conversation to have with your buyers. Asking them their income should be EXPECTED. That BEGINS the conversation to the amount you can afford to pay for a home. There are a few calculations needed, but it is very simple when you've done it a few times. It is not Rocket Science, it is your job.

Dana. My pleasure. I believe that you'll see more agents who have been around for a few years using a Financial Statement Form. We relied on doing these simple tasks before loan officers had DU or could pull a credit report in minutes. Goodness, when I started selling homes, it took 7-11 days just to get a credit report.

Harrison. Right you are. A buyer who is not forthcoming to their agent about their finances is one to avoid.

Charlene. Wonderful comment. I don't do the loan officer's job either. I do my job, which is qualifying a buyer before I accept them as a buyer/client. I may not pull credit reports but I do question folks about their credit. Folks don't lie to me. They know it would be a waste of time. I give the consumer credit for wanting to buy a home. However, there are some out there who think that good credit isn't required. I disabuse them of that idea early on. While I don't pull credit reports, I can ask questions.

Christine. You're right. It's gotten very complicated. I just want to have a dialogue with buyers so we don't waste their time and ours.

Bill Burns. Thanks very much. You're right. Consumers really appreciate an agent who gets into the nitty gritty of their ability to buy a home in the right price range. If the buyer isn't comfortable with an agent's questions about their finances, the agent isn't doing it right, perhaps needs more training or experience.

Damond. Makes sense, but ONLY if you are selecting the loan officer. Many of our buyers come to us already "pre-approved" by various lenders.

Gail. Many agents have the same opinions about buyers' financial info. However, IF THEY EXPECT THE SELLER TO TAKE THE HOUSE OFF THE MARKET, the buyer must be prepared to verify their ability to obtain financing. If we could trust the various lenders letters that we get, we wouldn't have to ask for financial info. BTW, my financial statement form does not ask for a Social Security number. Further, it is voluntary. If they don't want to provide it, fine. Go to the next house and we'll go to the next buyer.

not a moron.

You wrote: Do you know the most recent guideline changes that affects req'd PITI reserve requirements, or the most recent DO requirements when it comes to tradelines in dispute?

In fact, I do.

He who must hide under the cloak of anonymity has nothing worthwhile to say.

Martha. You wrote:

I am getting a financial 'feel'

BINGO!!

JMAC. Right you are. Agents who have no interest in a buyer's finances probably don't know what they don't know.

Experience teaches us what we need to know.

George. Your closing rate is probably a lot higher than folks who are afraid to ask about buyer's financials.

Ron. And we probably won't read a post from you complaining about contracts that fell apart at the last minute. When we understand what we're doing and know our buyers well, we close contracts.

Lots of good information here. Thanks Lenn for kicking this off. I do rely on a very good mortgage broker who I can honestly say is working as hard as I am! He hasn't let me or any of my clients down yet. We did reset the expectations for one customer that turned out just fine.

Now that business is heating up, I'm seeing more-and-more "buyers" calling and ready to go looking. I ask a lot more questions and don't jump in the car any longer.

Myrl. I don't require that a buyer be pre-qualified by a lender before they get in my car. But, they surely have to answer my questions about their price range.

Cyndee. Nice to hear from you. Thanks. Indeed, we don't get to be successful without understanding the basics of home buying.

Fred. You wrote: They mention "liability issues" and "scope of services" as defined in the buyer agency contract.

Goodness. We don't stick sharp things under their fingernails. We request that they complete a Financial Statement so we can do out job that their engage us to do for them.

If a buyer isn't comfortable providing me with simple qualifying information, they can simply get another agent. Simple as that.

Erica. Excellent point. It's been clear to me for years that the quest for the loan officer to be the first stop in the home buying process is an attempt to "get the loan", especially with in-house lenders.

IMO, and in my experience, most home buyers do not have sufficient financial information to know when a lender is offering them good instruments. If a buyer's agent can verify that the lender is doing the job, fine. If they can't, not so fine.

Erica. Where is it written that a buyer's agent cannot receive financial information voluntarily provided by a prospective buyer????

Lenn--I'm with you on point 2 in your reply. I think I stepped on the lender's toes ... I replied that I WAS INDEED doing my job, and I wanted to help the buyer start to finish. I don't just open a door and then write a contract. Realtors are the only party in it from start to finish, linking all vendors! (lender, appraiser, inspectors, attorneys...)

Erica. YOU ARE SO RIGHT.

We are there, as I advertise on my web site(s) "From Search to Settlement".

We are the entity that is tasked with "case management". No one else.

So we want to satisy ourselves about a buyer's financial ability. So what?

We're going to do the work, we need the tools.

I truly believe in relying on a Professional Loan Officer to provide me with a pre-approval that has had a credit report pulled.

For example. I asked basic questions and their income was good, they had money saved, they told me their credit was good and they were up to date in their payments. Well, the loan office found that 5 out of the 6 of the potential buyers had credit collection liens to the tune of $25,000 to $55,000.

They didn't disclose that to me and if I would have just qualified them I would have been a tour guide until they found a house they could not have purchased due to credit issues and credit scores. If their credit score is less than 580 why even begin the process.

If I have folks that want to buy a house I meet with them to determine their goals, explain the process and tell them the very first thing we have to do is be approved for a loan. My lenders have not failed me and with all the changes that seem to take place on a regular basis, why would I think that I am versed enough to do their job. I am not-that is why I DEPEND on their expertise.

Lenn... I hope you don't mind, but I couldn't help myself.....

@ not a moron..... . here is the comment that you wrote, in which you could be negative, yet not show your face. Not a moron's comment.. I think you underestimate Lenn and many other realtors in here. I will say this, I don't think most realtors should be pre-qualifying people. BUT... Lenn is doing something very simple and something that works for her. I don't care how many times guidelines change, etc, etc. You know why? Over 50% of all loan officers can't even qualify a borrower. I closed 10 borrowers in 2008 that were approved by their lenders and the day before or the day of settlement, poof, they were denied or still working on the loan. All 10 of them were not even in my state of New Jersey. All 10 of them were with their previous loan officer for 30 days plus. I closed 2 of them in 5 business days... another in 12 days, and the other 7 in about 2 to 3 weeks. But I closed all 10 of them legally.

My point? She is using a very easy and basic concept of 30/40 ratios and assets. We know that any approval and loan closing is conditions upon an appraisal and title work... and a few other things that need to be verified. But these items are never checked when doing a pre-qualification. All that is asked and checked is credit, income, assets, and a few other questions that I listed here. Jeff Belonger's 7 successful questions to an almost guaranteed pre-qual. I say almost guarantee because I don't like using the word guarantee when I talk to my borrowers and because I am sure there is some yo yo loan officer that would want to tear into those questions and tell me that I am wrong and not asking enough questions. When to me, it's totally the opposite. I challenge any loan officer to tell me that I am missing something.

Back to what I am trying to say. Lenn asks to she their assets and uses the 30/40 rule. Let's not play dumb.... If the borrower has the credit scores and answers a few questions, which are listed on their buyer's sheets, you could get most anyone a mortgage at 30/40, front and back. Lenn and I talked about this. SHe also asks the borrower on what kind of payment that they are comfortable with. See, many of you loan officers try to qualify or approve the borrower at their maximum, without ever asking what they would be comfortable with. Who cares if I can qualify for a $500,000 house, when I know I don't want to spend more than $2,500 a month in a mortgage payment. YES, believe it or not, more than 75% of the buyers out there have a very good idea what they want to spend. This is one of the first questions that I ask and most don't even hesitate, they already have a range in mind. Just food for thought. By your comments, it seems that you ask other questions and have another agenda. Whoops, I am assuming, which I hate doing also and don't find it fair. But you also assumed in regards to your comments, right?

jeff belonger

Lenn... I hope you don't mind again... but a few things that have me scared in my shoes that I want to address.

@Catherine.... . here is what I find disturbing and I am not the only one. But most people on Active Rain don't like to call people out, because they try to be nice. But you never replied to my comments directed to you after I questioned your 44/45% ratio comment. That you told me that you never heard of a housing ratio to be 1% less than the reoccurring debt ratio. Want my honest answer and not just from me reading it, but 2 of my underwriters, 3 well-established loan officers from my office, and a few others that I sent that to.... you had your ratios backwards. So here you criticize then, yet you can't get something very simple?

So lets move onto the next issue then. You have no real profile... you have no picture. You haven't written one blog, but you have come in here and criticized Lenn and others. You just have a phone number and you are obviously from California, where I have found many of the loan officers out there incompetent. Yes, I have friends that are loan officers in CA. and they are damn good. But I talk to about 15 people from CA. each year that had been speaking to another loan officer that didn't know what they were talking about. Yet you have made at least 65 comments or more and I have noticed that you have been on here for over 2 weeks. hhhhmmm.. what is your agenda Catherine? Am I playing with fire by even talking to you? I know some people are cruel and they like to bring others down. But your intentions and what you have shown me, make me only assume for the worst, besides what I found out after doing some digging.

But let's get onto some other issues. You never replied to Tom Burris, comment #50. Or Ken Cook, comment #72. Yet you talk about a "Red Flags Rule", but that you make no reference to this rule and where it can be found. Is this a statewide rule? Is it a national rule? I think I can assume what the answer is already, if it's a real rule. Read this comment by Katerina Gasset : Katerina's Comment . See Catherine, real estate is local when it comes to rules and guidelines. Not all contracts are the same, not all agreement of sales are the same. In CA., you call a closing an escrow, to where other states call it a settlement. And your closing is not finalized until the deed is recorded. IN NJ, FL, and many other states, this is not true, it's different.

My whole point, you are throwing stuff out there that might be state specific. You are assuming... besides, please show me this so-called "red flag rule". Here is what I found... The "Red Flag Rule" . Is this the same thing that you are talking about? Here is your comment in regards to the Red Flag Rule. Catherine's comment- The rule that I read talked about banking institutions and credit agencies, etc, etc. Besides, Lenn never said that she was pulling credit. And as Katerina stated, her board of realtors has an approved financial sheet that is allowed by realtors in her area. I know many realtors that have these types of sheets.

Catherine.. one last thing... in your comment here, number 75... Catherine's comment- She didn't delete your post, you haven't even written one. Why not? She deleted your one comment, because it was not appropriate. It was a lenders guideline and was waaaaayyyyy tooooooo long. Secondly, did you see the dates on some of what you copied? It was going back as far as 2007 and even those things have been changed.

Lastly, I asked you to call me or send me an e-mail. Do me a favor, if you don't want to do either, at least fax me this flier that this other lender sent you, about a 55% debt to income ratio, without mentioning a front end. A lender advertising just a back ratio? Imagine that. You know how many fliers I get that are misleading, not true, or lead your imagination to run wild... such as yours did. Unless you want to prove me wrong. Catherine, I challenge you to put your comments to the test. Please fax this flyer to 775-361-6619. I don't believe what too many people say until they show it to me in writing, and not your writing. Not calling you a liar, I don't know you. But I would love to see what you have. Again, up for the challenge?

jeff belonger

Peggy. Over the years and qualifying hundreds of buyers for price range, I have only had two that didn't qualify for credit.

If something is going to be a problem, it's going to come out in my Financial Statement.

Jeff. Funny. I just closed on a home where my buyers could easily have qualified for a $1,000,000 but stuck to their comfort level of $400K with 20% down because.

They don't want to be a slave to a mortgage payment.

They like to travel and do.

They are comfortable. I did not show them homes to the limit of their comfort level. I just found them the very best home in their price range.

To all those cocky loan originating order takers who think that REALTORS don't know squat about lending posters above:

Send me your "preapproval letter" with my commission check for 3% of your approval number attached, and I will stop running ratios and I might consider sending you buyers.

Thomas. Very good. That is the comment of the day,. . . of two days.

Lenn, a mortgage professional could have--and should have--told you all you needed to know to determine what price range a consumer can afford.

Thomas Johnson, it's not that realtors CAN'T compute debt ratios--of course they can--it's that they SHOULDN'T compute debt ratios, for all the reasons that I and other loan professionals have stated. Besides, if you don't actually VIEW the documentation, you can't ensure that the buyer isn't lying, so why bother asking? You're NOT entitled to view their documentation, either, pursuant to the New Rules.

FACTA, which stands for Fair and Accurate Credit Transactions Act--which, by now, Jeff Belonger, you should be following to the letter--(also called Red Flags Rule) ensures that financial institutions take greater measures to ensure the privacy of consumers so that people who are privy to the consumer's financial information treat it properly. If realtors act like financial institutions by viewing consumer's financial documents (not advisable), they'd better be prepared to treat the consumer's financial information with the same confidential safeguards in place.

No, it's not a realtor's J-O-B to "qualify" consumers. That's someone else's job.

Lenn, I wish all Realtors operated like you! I can't tell you how many times where we get leads where there was NO way in heck we could ever get the family approved- a little pre-qualifying in the beginning saves a lot of us (Realtors and LOs) a lot of time! So often I get calls where they want to write an offer and the buyer hasn't even spoken with a LO- what a waste of time. Getting a general idea is great!

Let's get things inline------This is my job that's your job----- The last time I checked the job of agents/brokers is to sell property. Fact the pay is percentage of the sale to show this point. Realtors sell properties, Banks sell money, Insurance company sells insurance, Home inspection sell inspections, ETC. Just like any other sales, car sales for instance sells cars "That's thier job" but anything they do to help speed up the process "can" not always be a service to the customers.

Sometimes trying to parts of other peoples jobs causes slow downs in the process, and big heads get in the way-you know the ones.

Expand your walls list your products and servces on places offered to you through the networking process. In order for networking to work YOU have to work it!

Lenn, I started off in the lending industry which gives me a great advantage when working with clients.

I see SO MANY homes fall out of escrow in the MLS because people weren't as pre-qualified as they thought.

We make sure that every client gets pre-APPROVED with a lender (usually a lender that we have a lot of experience working with) and that pre-APPROVAL (not pre-qual) is based on a full application, credit report, all income and assets document, and a DU approval. I then talk to the lender and go through everything with them and confirm payments and affordability with my client. All this in done BEFORE we start discussing a price range and start looking at homes.

I have no idea why agents would be out with clients before they are pre-APPROVED! But, we see it all the time.

A Realtor IS NOT a lender, and even though I know a lot about financing and lending requirements, it is not my job, nor do I feel that a Realtor should put their license on the line by acting as a loan officer and telling clients whether or not they qualify for a loan.

Besides, why am I going to waste my time on clients if I only know that their numbers qualify. There are far too many other variables when it comes to getting a loan.

This should be done through a trusted loan officer. I send my buyers to a lender to get pre-approved. If they don't want to get pre-approved, then I don't work with them.

I think that the main idea of your post is that agents should have their clients pre-qualified BEFORE they work with them and submit an offer on a property. This IS the job of the buyer's agent - to make sure that the offer they are submitting is a good offer. It's a waste of time for everyone involved if a contract is negotiated, and then can go to closing the because the buyers shouldn't have made the offer in the first place.

I do not, however, believe that it is the Realtor's "job" to pre-qualify their buyer clients. It IS their job to get them pre-qualified by a lender BEFORE writing a contract.

~Michelle Fradella, Broker, FHS, CNHS

Pinnacle Real Estate Services

Picayune, Mississippi

http://www.prchomes.com

I understand the overall message, howeverI agree with many of the comments that one needs to hook up with a reputable and reliable loan officer that can run the numbers before any showings are scheduled. Once a property is found, they can tailor the pre-approval to the specific property. There is also a great distinction between pre-qualification and pre-approval. Pre-Qualifications generally aren't worth the paper they are printed on because nothing has been verified. It is just a statement by a lender that states "based on what you said, you may qualify for this amount of loan." A pre-approval, on the other hand, is much stronger because credit has been run, tax returns have been reviewed and income verified. Also, a good lender will never say how much house you can buy, they will tell you how much you can afford in mortgage payments. This is important because most conforming loans are underwritten based on a specific FICO score and guidelines change regularly. Therefore, with this information in hand, I can work with my buyers and determine how much house they can afford by merely inputting the variables (down payment, interest rate, etc) into a simple mortgage calculator that should be readily available to any agent that has Internet access.

It's interesting to read everyone's comments. It makes me wonder how many "old time brokers" are really ready for Gen Y?

not a moron.

You wrote: Do you know the most recent guideline changes that affects req'd PITI reserve requirements, or the most recent DO requirements when it comes to tradelines in dispute?

In fact, I do.

*********************

Oh really? How about the fact that I made these up to see what you'd say? There are no guideline changes to PITI reserve requirements.

I expected nothing less from you, dear Lenn. You'll never open your eyes, or try to understand the immensley complicated, and ever increasingly stressful world we, as mortgage professionals are dealing with today. It's ok, because IT'S NOT YOUR JOB!!!!!!

More and more deals are going to fall thru.

And by the way, if someone like you, tries to pull this with any of my clients, be sure you will be met with a staunch rebuttal, as I will NEVER allow my clients to divulge their personal financial information to a listing agent. EVER.

Good luck getting thru what's coming our way next! Live in ignorance. Blame "incompetent" LO's for the deal falling apart because of DTI. You're just showing me how intenstely ignorant of the actual process with everything you wrote. You really think approval have become "automatic"?!?!

Typical. Absolutely typical.

Martin, Martin.

It's we old timers who are teaching the GenY classes in Pre-Licensing and CE.

It's we old timers who are running the brokerages where the Gen Y are learning their business.

I'm not aware of any physical requirements for real estate brokerage. Shucks, I'm older than dirt, but I work circles around every agent I know.

Make many times their income too.

Lenn,

As usual, great post. I use two - three loan officers whom I've created trust with over my five years as a REaltor, but you bet I ask basic qualifying questions and then get them to a loan officer before we ever hit the pavement. Time is too important to waste - it's not fair to me or the client to look at homes they'll never be able to buy.

Lenn-You may be older than dirt, but I'll bet you're more tech savvy than many "kids."

I applaud you for LEAVING these comments here, and letting us spar on your blog. In the recent past I've disagreed with someone and and she removed my post ... and my apology for offending her (my apology explained that I did not intend to offend).

AR should be a place we can agree to disagree, and state our case. You may or may not agree with someone, but deleting arguing opinions (stated politely) seems a bit extreme.

Erica.

I just deleted Catherine Coy's comments because she was just too nasty.

Personal attacks are not debate, they are diversionary.

She can spew her venom on her own blog, not mine.

Folks are a guest on my blog and have freedom to debate but not be nasty. If a person is a guest in your home and they become abusive and nasty, you can escort them to the door.

If you look at her blog on ActiveRain, you'll see no content, no profile, no nothing. She hasn't contributed anything but ad hominem attacks on MY BLOG.

By posting that long guideline on my blog yesterday rather than a link, she usurped my blog.

Wisdom is a wonderful thing. Thanks for sharing yours!

Lenn--You're right. Her posts deteriorated into just plain nasty.

There is no room for that here, period. I saw the guidelines yesterday and just scrolled right past it.

I have been told by other agents that I am TOO cautious, representing my sellers. I just had someone balk at providing proof of funds to close on a cash deal. It is our JOBS to represent our sellers or buyers, and look after their best interests. We're not being nosy, and it's just business.

Steve. Thanks for visiting.

Erica. Many folks don't know it, but I consult with many listing agents, Shhhhhh. One thing I encourage is for them to "trust but verify". It's a simple concept.

If they want the house off market, they'll give the seller proof of funds or, and this works often, give the title company a non-refundable earnest money deposit. If they default, which happens with cash deals more than any other because they are often investors, the lose the deposit.

Works for me.

Stay tough. You don't want that call two days before closing cancelling the settlment or asking for extention after extension.

Quite an interesting blog AND responses. Dissent from the originators practices seems to be a tough pill to swallow for some. Lenn, it's your business right? Shouldn't you have the latitude to conduct "your" business the way you see fit? I say----Maybe...

If you are the Designated Broker of "your own" brokerage firm then I definitely say YES. If you are an agent or associate broker working under or for a brokerage firm then I say NO. Ultimately your decision to engage in practices beyond your scope of expertise is your choice but having said that, if you are not an independent entity your choices can and will affect the Brokerage Company and should be regulated or approved by the firm/manager/designated broker. This of course is all assuming you are not a licensed mortgage broker.

Under the Realtor Code of Ethics Article 11. The services which Realtors provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage...

...Realtors shall not undertake to provide specialized professionalized services that is outside of their field of competence unless they engage the assistance of one who is competent in such types of property or service...

The decision to pre-qualify a buyer with basic questions is a good one in my opinion. The decision to delve into their financial information is not. Aside from the aforementioned privacy issues and potential violations there are ethics, department of licensing and state statute concerns. Unless you are a licensed mortgage broker there could exist a legal and ethical case to made about your competence to make decisions that could determine the fate of your buyers home purchase.

In other words, if you choose to advise a seller to reject a buyers offer (as the listing agent) because your opinion was they did not qualify, you are not only opening up your company to potential legal issues, you are jeopardizing your sellers sale by (doing harm) and (working beyond your scope of expertise) which could violate your agency or fiduciary duties under your states real estate and licensing laws.

As a buyers agent, if you chose to not work with a buyer because your opinion was that they did not qualify and they later found out they did and through your actions missed out on an opportunity to buy the home of their dreams because you refused to work with them, you are opening the door to potential and unnecessary liability including discrimination claims.

We as agents/subagents/brokers etc must understand that we should not engage in services that our outside of our areas of expertise or beyond our scope and are required by the Code of Ethics and State Law to refer clients and customers to the proper professionals. If you are unsure of your legal and ethical duties as a licensee in a real estate transaction please consult with your Broker or legal counsel.

When I first got into the business, i was very fortunate to have a manager who taught all new agents how to prequalify a buyer. We are not prequalifying them for a loan, but, we are qualifying them for a price range, and to see if we want to put them in our car and show houses.

Here are my basic rules:

Before showing properties, I have a Buyer Consultation with a prospective buyer. It takes a minimum of 45 minutes, but, when some buyers have had lots of questions, it has lasted nearly 3 hours. An average time is about an hour and a half. It is time well invested in educating the buyer.
Before the Buyer Consultation, I call one of my three trusted lenders to do a prequalification to get a price range. If the lender and buyer can't connect before my Buyer Consultation, then I will qualify the buyer during the Buyer Consultation. One of my goals of the Buyer Consultation is to decide if I want to spend time with the buyer.
Each of my lenders will typically do a prequalification over the phone with the buyer, and let the buyer and me know how much the buyer can afford. The lender then gets the buyer into the office as soon as possible for a full preapproval. Then the lender sends me a preapproval letter that I can work with.
I never make an offer without a full preapproval letter.

By the way, buyers never leave a Buyer Consultation without signing a Buyer Broker agreement. If they don't sign, they don't get into my car.

Ladies & Gentlemen:

I have been an originator for some time, and I truly do not have a problem with a Realtor who asks questions about income, or assets to see if the clients will be comfortable with their payment & if they have enough money for closing.

There were some topics that stood out from originators.

1. Catherine was right in most of what she said, and should not be demonized for it. Laws are being enforced in regards to financial privacy; This, IMO, is what she is fired up about. It is a good warning.

2. Jeff, you're the man. Obviously you've never had a deal go south, so keep sucking up to the realtors on this board, because it's guys like you who make all of us look a little better.

3. I have to laugh when realtors say that my job is not rocket science. In truth, they are right! It's not. It is however, a job that requires the ability to stay on top of shifting sand! "The back to basics is a help, but Lord help you if that's all you are doing". Darin, great post about Wells' emails.

There are some things that stood out from realtors:

1. If you want a trusted MB who will tell you "Don't waste your time with this client at this time", and refuse to furnish you with their "worthless piece of paper/pre-qual letter", show a little loyalty. In short, if I say no way, don't give out two more MB's cards to see "if they can get it done". The next time, I may take a chance on that borderline buyer! I didn't make the rule, but if that's how it's played, that's how I have to play to not lose a referral source. You know that you've done it, and it is a contributor to bad pre-quals.

2. Buyers who need financing need to understand that a team is working on their behalf. A buyer IS pre-approved when they can put down 3.5%, or have access to a 100% loan through the VA when they need 6% from the seller for closing costs. THAT'S WHY THE PROGRAMS WERE WRITTEN IN SUCH A WAY. It is ignorant to say they are not qualified buyers. Please don't be put off by a Loan Officer who tells you how to write a contract; some of us know how to get buyers approved who don't fit into the cookie cutter.

3. In keeping with the TEAM concept, the Loan Officer is the most important person in a sales transaction when the buyer needs financing! That's right, I said it. We coordinate insurance requests title requests, appraisals, conditions to approvals, packages to title companies, ect. I don't care if you swear at me behind close doors, curse my name to your spouse, or stick needles in my voodoo doll replica, BUT BE CERTAIN TO SING MY PRAISES IN FRONT OF OUR CLIENT! They cannot lose faith in us. At this time, even good LOs are on to other ventures. It is not hard to get buyers approved after thoroughly pre-qualifying them. It is difficult to get them to the fiish line with fewer funding lenders who are working on skeleton crews.

Not a moron,

Pertaining to comment 158, I concur. I would never allow a selling agent to view my client's financials. Moreover, I would caution any buyer to furnish financial records to a realtor under any circumstance; it is not appropriate, and the law states it.

Thanks for the thoughtful post and contributing replies to it. I'll look closer into qualifying my buyers by working closely with my MB from the beginning of the transaction.

Lydia. I suspect that you'll be glad you did. I believe an agent can do a superior job for their buyer or seller when they know what's going on.

Scott. What law states that a seller cannot verify a buyer's ability to obtain financing if the buyer wants the seller to take their home off market and wait for final loan commitment?

Bob B. I suspect that your "closing" rate with your buyers is very high. So is mine.

Gene and Tim. I am the broker/owner. Practice and Procedures are in place.

In fact, it is in our BA Agreement that one of the duties of the home buyer is to provide financial information as requested by the agent/broker.

BTW, if agents and brokers are not expected to qualify home buyers, why is it taught on real estate school and CE on a regular basis?????

"Over the years and qualifying hundreds of buyers for price range, I have only had two that didn't qualify for credit. " (your story)

Maybe I've been lucky too, but buyers misrepresenting their qualifications or lender approval letters that later don't stand up just haven't been big problems in my practice.

Whatever the buyers might say to me in a financial interview has no meaning to anyone in the process (it's what they show the lender that gets or doesn't get the loan, not what they choose to tell me). A detailed financial interview is not only unnecessary, it's also insulting to buyers who already understand their personal financial situation. My clients appreciate being able to work with me in confidence, knowing that I have not pried into financial details that they don't want known to family, friends, or business associates who may have referred them to me.

In addition, the financial interview puts a lot of confidential client information in the file, representing an unnecessary source of risk to them and liability for us. Are your files always locked each and every day of the years you are expected to keep them, or did you forget and leave the file cabinet unlocked at least once in the last three years? Is this stuff ever transmitted electronically (fax, Email)? Do old files get stacked in unsealed boxes in a closet someplace? Can you be absolutely 100% certain that every such piece of paper is always eventually shredded and properly disposed of, or did part of one file one time get accidentally get thrown out in the trash while being mistaken among other less important papers? If from the very first you never obtained income figures, a Social Security number, or credit card numbers, you would never have the opportunity to compromise these personal information elements!

Instead of collecting personal information just to be nosy, we should spend our precious time focusing on the needs of our clients, and leave the financial info to the lenders who have the tools to verify the answers in the context of the loan programs they can offer.

I guess the new string/thread here, begs to another topic altogether! Why arent Realtors writing MORE back up offers if in fact these "falling outs" are really happening in your markets??

I am with JEFF B and others, in that my deals close..and personally, i dont have any of these issues with the Reatlors here in Wisconsin.

I am trying to understand, but I AM now understanding where the hostility and animosity is coming from!

My friend RIGHT THIS SECOND, is having to deal with a BUYER of her home not having met the financing contingency. However, she never 'really' took the house off the market, UNLESS, there is verbiage stated in the OTP as to "not entertaining back up offers" and the like. I am not a Realtor,but I do know there is something that can be put in there about that.. Her Realtor is doing a TERRIBLE JOB, in fact despicable! I am actually doing a 3 way call with them in a few minutes, becuz I speak the language, and my friend does not!! argghhh....can she switch to you Lenn?? LOL She needs a hard core Realtor that knows what she is doing! She has a lazy southerner now, that "gets around" to doing things when she can! Pathetic!

Anyway, as I understand a bump clause, if it is removed...then, yes, it is off the market..but in this market WHY would anyone remove it?? If I were a REALTOR, and I had all these buyers looking for homes, and they found one they liked, knowing what I know now...I would FOR SURE write a back up offer on it....What do you really have to lose?? Most of the homes are such good deals anyway, you could up it just a 1000 bucks is all! I actually have a REALTOR friend here in Wisconsin, that told me he wrote a backup offer at the SAME price on a property here in Wisconsin..just because he thought the financing was so thin....

Great reads! I love learning...am looking forward to the fu comments..

Oh and Scott, just a "small " suggestion on #172....What law are you referring to?? Just curious??

thanks..>bucky!

Bucky. I don't understand where the animosity comes from.

I wrote a post, pursuant to another blog about two deals "going south" in two weeks, about how to avoid the last minute calls from the loan officer that the deal wasn't going to close and appear to set the teeth on edge of some loan officers.

Dang if I can figure it.

Nothing has changed. I still believe that agents can avoid last minute failures if they take the right steps in the beginning of a relationship with a buyer.

Many have good relationships with loan officers who can do the pre-qualifying for them. Agents feel no need. I want to keep my buyes options for financing open until we have a home in mind.

It's a practice that has stood our buyers well.

Yes, what IS that "law" against revealing financials to real estate agents?? Never heard of it, and please, do quote. Real question.

As I said in my initial post, I am not a LO and don't want to be, but I can't do my job if I'm not aware of my clients' financials. And If I ever do a deal where the LO tells my buyers not to disclose financial info to me, it''ll be the last deal I ever do with that LO.

And one source, you're right, you're not a realtor. Therefore you should write about mortgage services, not realty services.

Thanks Charlene. Well said.

COULD NOT POSSIBLY AGREE WITH YOU MORE!!!

THANK YOU!!!!!!!!

Also, Charlene, I have not written ANYTHING aboiut Realty service..not one word..

I asked a question because I want to know..I am not stating any fact, and just had this situation pop up! I have nothing to do with Not a moron, Catherine, or anyone of these folks. I dont understand where this turned?? I am all FOR everything that Lenn has talked about..with the exception of philosphy on the relationship between a Realtor & Lender. It is clear to me at some point, things went bad for Lenn with a lender...whether it be 4 years ago, or 24. Then, SHE decided to change her way of doing business, and I applaud her for that.

I have not, nor will I, write or blog about Realty services..My father was a Realtor for 20 years ..so while I dont PRETEND to know ANYTHING about Realestate Sales, I did absorb some things through osmosis! ..I might blog though from a Lender Standpoint...like I did in one blog...to help get deals pushed through and increase communcation on isssues between Realtor & Lender.

Im sorry, but you must have misunderstood.

BUCKY

Darin

Thank you Lenn, for the idea that we all need to go a little further for our clients, including saying it doesn't look good right now, let's get you with a reputable lender to work on yourissues. I didn't see anywhere that you implied we as realtors are replacing or even giving financial pre approvals. What I saw is a experienced person helping out on an issuethat is obviously in the forefront of any thinking person in this economy. I am saddened by the vicious responses you received. There are people in every crowd who feel the need to lash out. I think they must have had a very bad experience to act that way. In general, if you are embarrassed to post your name, perhaps you should rethink what you are leaving as your mark on a site that people you are hoping to work with are reading. I for one hope never to have the experience of working with close minded people who are more concerned over whose turf it is than working as a team for our client. How many of my associates have commented about a loan broker making inappropriate comments to their clients, regarding them! Even one is too many. I am dealing with this right now, making comments about the real estate the client is hoping to attain. Not knowing anything about the property and only being told she was told, by me, to call and see where she is with her financial position for a loan. Mind you this person has $ and the ability to close, as well as more experience at this than most people I know. The loan person acted very rudely,( and didn't know she was being short with my best friend, nor should she have known) and I will not use her or refer to her again. I don't know about other states, but in my area, Realtors often refer to loan officers. I enjoy working with many lenders in our area. We have some fantastic team players. They pick up the phone and thank me for my referral and ask about the way we are going with the purchase etc. I consider these people informed, not trying to over step my "real estate Boundaries". In final comment, I will say that if you don't do a little pre-qual with your buyer, you are doing them a disservice. I don't want broken dreams at the end of the process and my time is very important, as is theirs. I wrote down the formula and intend to use it to assist my clients, as I refer them to a trusted lender. The lending industry is changing as fast as the real estate industry and if anyone thinks they are an island unto themselves, they will be the ones saying I don't know why my business is dropping when those around me are building. I don't know about you but I like to do business with polite professionals. I really believe there are more of the good ones that know thier stuff inside and out and want to be a part of the winning team.

I have never demanded a financial statement before. I do talk to them about there situation and try to get sense of it. I also talk to the loan officer. I have found they can be qualified in one place, but not another based on company guidelines. There are differences between lenders and programs. It is good to know several lenders to work with.

Wow..this is the most entertaining blog I have read since I started on AR! I laughed..I cried...it was well worth the money. Oh, wait..it's FREE!!!!

Darin. Actually, this post was inspired by a post I read early yesterday a.m by a Realtor who wrote about two sales that didn't happen with last minute lender notice.

My post was advisory, not anything else. Agents: Learn your business. It was primarily the loan officers who took offence.

No, I have never been bitten by a lender. Several of our agents have had bad experiences with Internet lenders who couldn't close, not I because if I'm working with a buyer and they come to me already "pre-approved" by an Interent lender, I simply compare the GFE with that lender to one from a local loan officer and the buyer then makes a choice. It's still their decision. Generally, they get to within hours of closing and the Internet lender cannot close unless the buyer comes up with an additional point or two. I don't have to say a word, I just get the quickly approved by a local lender. Sure, they lose the out of pocket for the appraisal, credit report and "application fee". But, they were forwarned.

What I don't understand in these circumstances is why the listing agent/seller even took these contracts. Oh well.

I learned to qualify buyers back in the olden days when it took 7-10 days just go get a credit report. Things are a lot easier today, but the old ways of understanding the financial processes doesn't hurt a thing. Loans are much more complicated today and I wouldn't begin to recommend loan types for conventional loans today. That's your job.

I know my job.

Let's define terms, shall we?

I certainly see nothing wrong with a buyer's agent making sure that their client is fully pre-approved with a trusted mortgage professional. That's the way to do it, no doubt. Before you look at even one listing, get your client pre-approved. Talk to the LO, ask them what financing terms they're considering, if the client could benefit from seller concessions vs price reduction, closing date, possible pitfalls, etc. I see nothing wrong with the buyer's agent being involved in this conversation.

What I have a problem with, is when the SELLER'S agent, wants personal financial information from the BUYER beyond the pre-approval letter that's promulgated by state and federal licensing entities.

That's scope creep. Concentrate on YOUR job. Would you like me to approach your seller, and tell them that you haven't done enough to market the property? That your flyers look cheap, and something a 10yr old did? Or that you could've done a better job at preparing the house for viewing?

Yes, I know you want assurance that the deal will close. Guess what? You're not going to get that in the beginning stages, people!! Are you paying any attention to the news? Do you think that MAYBE, just maybe the global economic crisis we're in just MIGHT have something to do with the fact that more deals are falling thru right now?!

By calculating DTI, you're not going to be assured that the deal won't fall apart because of something like an appraisal issue. Do you know about the huge HVCC change? Expect even MORE headaches from this. I've heard values coming in $50,000 under the sales price.

I'm sure you'll continue to blame to the LO's for this, but what's happening is far from our control. We don't control the lenders, and we're not in control of congress. Stop blaming us, and try to understand WHY this is really happening. Stop making this already intensely stressful environment even MORE antagonistic!

Let me reiterate, I will NEVER allow my client to divulge their financial information to the SELLER'S AGENT, EVER. Pre-approvals are just that, PRE-APPROVALS, not final approval. Things will go wrong. Deals will fall thru, expect it, set your clients' expectations as such, this is our reality now.

And I'm here to tell you, it's only going to worse.

Melissa. ActiveRain provides this enterainment site for your enjoyment.

Gene. Interesting comment. You bring up the Financial Statement. It is in our Board Forms file and available to all GCAAR members.

One reason I would require it as a listing agent is because it clearly states that "if the buyer signs it and, if they have provided any false information and the seller is harmed, the buyer's earnest money can be forfeited or at least harder to get back. The buyer can't use the Financing Contingency if they have provided the lender and seller false financial information.

Great post, many many great comments. Once I have established a repoire, I have the right to ask questions and I DO. Will you be paying cash for this property? That breaks the ice pretty well....

Rosellen. Thanks for your thoughtful comments.

I never understand why the mention of an agent doing a simple qualifying calculations sets so many loan officers off. But, it's their problem, not mine.

Many of my agents attended workshops conducted by loan officers that I have used for years. The loan officers know that if the agents can run simple calculations, they won't be writing contracts and sending buyers who can't qualify.

I don't know how many of you are in NY, but things are so different here. First of all, very few agents work as buyer's agents. I have decided to specialize in buyer agency, but it is a steep learning curve for consumers and the other agents. Buyers want to flit from agent to agent and don't even want to tell you their address; forget about asking them for their financials.

I will probably never go into the detail of pre-qualifying buyers that is described here. It's just not considered to be part of our job - we don't write contracts either. We have a mortgage broker right in our office and I encourage buyers to get pre-approved from him, even if they later decide to go with another lender. Often, I cannot even make an offer without an accompanying pre-approval (and sometimes proof of funds as well) and the listing agents want to see something from a bank.

I have learned that it's important to get the pre-approval and get the buyer to sign an exclusive buyer broker agreement. That is usually enough to assure me that the buyer is serious and has acted in good faith with the lender.

Diane. I suspect that most of us understand that practices in NY are quite different from my area of MD and VA.

In my area, agents have case/buyer/seller management from search to settlement.

WOOPS! Forgot to login!

Darn it! :)

Darin

Thanks Lenn!

Great response! I appreciate it!

I agree with you, it HAS been the LO's that have taken offense...Like you were peeing in their cheerios!

I am not one of them though....I merely ask questions with NO ulterior motive to learn!

I too learned in the "olden days" I used to calculate APR's by hand...and used to have to EXPLAIN the rule of 78's! :) LOL

I did learn one thing tho in the "olden days"...Dont let the door hit ya, where the good LORD split ya!"

Signing off! Darin

I agree that a pre-approval is pertinent to everyone involved. If Realtors have a relationship with a quality lender, they should be confident that the pre-approval letter is valuable. A quality lender will go above and beyond just using a credit report for pre-approving. I require my borrowers to submit their income and asset documents prior to issuing a pre-approval letter.

Thoroughly consulting with the borrowers should be a lender's service, especially with first time home-buyers. Explaining to borrowers that they need to put spending to a halt while in the home-buying mode is #1. It's important to also inform borrowers as to what activities can hinder future approvability.

Pre-approval letters are pretty much worthless in my opinion. They may provide some credit worthiness on behalf of the buyer, but virtually all lenders calculate affordability based upon Gross numbers. I want to know how much house my client can afford base upon their NET monthly income. A financial statement gives me that information. Which inturn allows me to show my clients property that they can REALLY AFFORD to OWN-Not just Buy. Isn't that how the Sub-Prime mortgage mess got started in the first place. Putting people into homes they COULDN'T AFFORD TO OWN!!???????????????????? Preparing a Financial Statement will eliminate that problem.

Wow, I have never seen a post with so many exciting comments. Lenn, I loved your post and would love to get a copy of our Financial Statement form, if you don't mind sharing. Thanks so much.:)

We interrupt this program for another GREATpost by Lenn!

I often think some of the newer folks simply don't know how to work the financials, let alone determine if their potential buyer will qualify for anything!

Loved the part about the LENDER who didn't ask about child support in this day and age...oh brother!

Here in Southern California, the majority of listing agents won't even accept an offer to purchase without a pre approval (Not a pre qual) letter from a DIRECT LENDER. If you try to write an offer with a pre approval with a Mortgage Broker, they will counter you and insist that the buyer also get a pre Approval letter from a Direct Lender, even if they only pursue the loan with their Mortgage Broker. Far fewer Mortgage Brokerages are around these parts nowadays, at least far fewer than were around a year ago. I've even seen programs on televisions about mortgage companies that have gone belly up during the past year.

My own favored mortgage broker has not earned any income and his own personal home is now in foreclosure. This was a man living in an extremely affluent lifestyle, and living in a pricey neighborhood (Pricey by California standards...That's pretty darn pricey!)

I qualify many folks myself, but that is normally first time home buyers and those with less than a ten percent down payment. Often, buyers with hundreds of thousands of dollars in down payment reserves, certainly don't need my prying into their business...and prefer to talk to or disclose their personal assets to as few people as possible. You can't blame them for that, I'm the same way.

For the most part, my experience with folks in this neighborhood of the real estate market do have all of their financial ducks in a row and therefore prefer financial privacy. In fact, most of them rarely disclose all of their assets since a full disclosure is not necessarily applicable in their circumstances. It's a fairly common occurrence around here that the higher the price tag on a property, the more likely it will be a cash transaction...but we do occasionally have a buyer who wants a mega-mortgage which is usually funded with private money, and on the rare occurrence, financed through their own corporate funds as a private bank, therefore making them banker and borrower. The more assets they possess, the more complicated it becomes.

The same, of course, is not true of the struggling first time buyers in my area, many of which borrow of receive financial gifts as a source of their down payment. Still, with these particular folks, I do work through the financials with them, if only to ease my mind and to be certain that they comprehend their own financial picture...oddly, many of them don't understand what they can or can not afford. In the case of many first time buyers, the listing agents (and sellers)request showing proof of funds for down payment and all closing costs, otherwise, sellers here simply don't accept the offer.

Knowing how to qualify a potential buyer is a good thing, it empowers the agent representing them, as it serves to empower the buyer as well.

If you don't know how to qualify your buyers, you'd better learn quickly because the days of not knowing exactly how much you can afford (To the penny!) are long gone.

As gone forever as the zero-interest-no-down-no-qual-stated-income loans of yesteryear!

Carol

www.ActiveSunshine.com

Carol. Very insightful. Fact is, sometimes you go on instinct, spell that experience.

I sold a $5,000,000 house to a couple without a financial statement. It wasn't necessary. I had his name and I Googled him.

We have a contract now for a $12,000,000 buyer. No need to ask for a Financial Statement.

Every buyer is different.

Lenn--I work in a very small rural area, and you get to know "the names" and who you do NOT need a bank form for.

Today I wrote an offer for an investor who I've sold over 20 properties to. He's a local business owner and has adequate cash on hand to pay cash for any property I've sold him. No financing info needed.

But that's the exception to the rule.

How funny is this... some of us have been working all day and I still have to get back to 3 more clients tonight... but my name was mentioned a few times.

@ ERICA & @ LENN H. - That is old school, the realtors questioning assets, even if they are a cash buyer, is okay. Better yet, even if they are a cash buyer, you better see their assets before they put an offer in. I know of and have heard stories that buyers have lied. I had one last year, because nobody verfied his assets. A buyer was buying a house from a buyer that I had, that needed that money to buy a new home. RUT ROW, you know what.... my buyers lost out on their house, because their realtor never verified the assets, even from the cash buyer.

Hey all of you yo yo loan officers that say that realtors shouldn't be looking at assets. Or that it's a law that they can't. Huh? What law? Whose law? People, I am a factual person. If I say there is a law, I am going to show the law and prove a law. Did any of you loan officers read my one comment that said that real estate is local. Each state has different laws. The only law that is the same for realtors in each state is the code of ethics. Outside of this, many states, local board or realtors, allow for buyer sheets to be collected by the realtors.

@ Catherine... I still asked you a specific question about the law and you still tell me that I should watch out.. or that realtors should, but you don't share this with us.... a link... or real information. I don't believe squat from most loan officers, especially ones that I don't know, because so many spout off from the mouth hear se, or assumptions, or partials .. part truth, but they don't get it straight because they didn't read the whole law.

Catherine... you stated this to me...

"FACTA, which stands for Fair and Accurate Credit Transactions Act--which, by now, Jeff Belonger, you should be following to the letter--(also called Red Flags Rule) ensures that financial institutions take greater measures to ensure the privacy of consumers so that people who are privy to the consumer's financial information treat it properly".

Trying to understand this now.... now it's the FACTA letter.. but it is also called the Red Flags Rule... and as i stated and yourself, it's for financial instituations not to share finances with other people... it STATES nothing about realtors who can ask buyers for this. What's funny about your argument, who said I share financials with my realtors or other people??? You seem to be backwards on this and saying that it's a rule for realtors also? Unless the realtor claims to be a loan officer and is licensed as a loan officer, it doesn't apply to them. Hence why the board of realtors allows for buyer's financial statements. I don't see why you don't get something that is so simple.. and not just to me.

Catherine.. I also asked you to prove to me this so-called flier that you received from another lender, about the back end ratio of 55%. You either aren't reading the whole flier correctly or you just don't have an idea of what it all means. Does this sound harsh? Yes, because I am tired of many loan officers. I am and I think many realtors are.

@Scott Kopko - comment #171 - I am semi confused. You said this too me... "2. Jeff, you're the man. Obviously you've never had a deal go south, so keep sucking up to the realtors on this board, because it's guys like you who make all of us look a little better."

I think you gave me a compliment, but at the same time tell me that I am sucking up to realtors? First off, I have pride... I don't really suck up... I might compliment which can be confused to sucking up. But Lenn and I.. and many other realtors have actually talked on the phone or have actually met in person. And I am not talking about those in my back yard. I have met a few from CT, PA., CA, MD, VA, NC, and Texas.

But in any case, I have had some deals go south. I have been doing this for over 16 years. In my 3rd year, I had only 1 deal go south because I made a mistake and we couldn't qualify the person. I was still learning FHA & credit. In the last 12 years, the only deals that go south is if there is an appraisal issue or a title issue. I am not perfect, but I am meticulous, which allows me to close my deals when I tell someone that they are qualified. Not pre-approved, but qualified, because I know what I can get away with. And if I am questioning it myself, I will run it through DU, DO, LP, FHA scorecard, GUS... anything to see if I can get an approval and not to worry about what the underwriter says.

I know many loan officers suck.. they do. Sorry, but it's the truth. I come across a lot of garbage. So some of the loan officers saying that realtors shouldn't qualify buyers AT ALL??? Gee, if many loan officers screw this up, what faith does a realtor have. Besides, I will agree and I will say this again. I don't like when realtors pre-qualify a borrower. I'll get to that in a minute. But I will say that I dislike severly those that claim to be a realtor and a loan officer. Lenn is not saying that here. She is a realtor and only a realtor. But she will do a quick standard pre-qual. But again, those that claim to show homes and do mortgages, they should be shot. yes, shot. Those are the ones that argue against my FHA vs conventional comparisons... and they tell me that my rates are too high. But I guess they don't know how to read rate sheets, because they are way off because of the pricing hits.

But in what Lenn does... yes, she will quickly pre-qual. There is a standard buyers sheet that many realtors use and I don't have a problem with this. And this is how Lenn can use this sheet. Here is a comment earlier that she made.

Lenn Said... :

_____ ____________

Jeff. Funny. I just closed on a home where my buyers could easily have qualified for a $1,000,000 but stuck to their comfort level of $400K with 20% down because.

They don't want to be a slave to a mortgage payment.

They like to travel and do.

They are comfortable. I did not show them homes to the limit of their comfort level. I just found them the very best home in their price range.

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate

_______________________________________________________

Sorry, but one of Lenn's main points that many have skipped over is that she qualifies them usually to what they are comfortable with and don't become house poor. What about all of those loan officers that qualified people at the maximum, but never asking what they are comfortable with a specific payment. ??? Common sense says... if you tell someone the max... or show that house that is more expensive, and that they do qualify, that many will talk themselves into it, to buy it, saying that they will do what it takes. I have a client right now, that I get that feeling. They came to me from one of my blogs. He already had a house picked out. His ratios are 32/44. But he needs to save $3,000 by June 26th... and from looking at his profile, his wife wants this house. But they will be tight, because we talk about rates every other day.

Overall, Lenn's way? Hence why her title says "qualifying is not rocket science." If you "keep it simple stupid." KISS Loan officers on here spewing about DU/LP approvals, wacky loans, changing guidelines... Again, Lenn is Kissing it, Keeping it simple stupid. Just my .02.... but I love the arguments from loan officers that make a claim that realtors should not touch this, that assets/financials are wrong or illegal for a realtor to verify this. WRONG, unless you can prove it to me in writing... many boards approve these buyer's financials. And keep in mind, each state is different.

jeff belonger

Okay Nastys, and not a Moron?

Have you ever been a title company closer that has had a loan reschedule 5 plus times because the lender keeps saying they will get you the closing package in the next hour? Would you not be up in arms as the Loan Officer and not allow it to schedule if you were an on point Loan Officer? I have been on the title company side, and thought wow this Loan Officer and this company really stink-AND THAT ISN'T REALLY THE WORDS I WAS THINKING.

I have also been on the lending side, working with a Loan Officer that is one of the best in my area, and I know this first hand because I used to close loans for him, and know from how smoothly the closings went how well of a job he did. I know now as an agent I WILL voice my opinion and do my job to protect my client, within the letter of the law.

Just as there are horrid agents, there are horrid L.O.'s, just as there are sucky people in every profession. There are people in it to make money, any sloppy way that they can.

Lenn, Katerina, and all of us that go the extra mile to do whatever due diligence that we should, should not be insulted, we didn't say to you specifically, wow, I knew that anyone who is breathing is allowed to become a Loan Officer, we were simply talking about ways to combat those closings that have been on the books with the title company 5 times and take the bull by the horns for our clients and protect them.

No one has any business allowing a 63% DTI to make it thru underwriting with good conscience. How about the day care expenses not allotted for, utilities, food, medical expenses, etc. that have to be paid out of that remaining 37%? Hello FORECLOSURE, nice to meet you Short Sale.

We can voice a strong opinion while still playing nice in the sandbox.

Lenn - Bet you had no idea that this post would hit such a nerve. I don't usually read all the responses when there are over 100, but this is just fascinating. Thank you for remaining civil and level-headed in this discussion. I imagine you are like that with your clients. Kudos to you for an excellent post!

@Heather... just curious, who was your comment too? I agree with what you stated and the frustrations. I do business with many different title companies and closers... and I hear a lot of horror stories. More than the average loan officer or realtor would think. I have know many loan officers that couldn't compute numbers accurately or could only rely on the computer and the findings... but screwed up the essential part. Income.... if you can't compute income correctly, all of the lender overlays and changes mean squat.

In any case, I am going to now ignore a certain person, because they have proven to me that they are the same that I have mentioned above. I ask for proof on two different issues, on 3 different occaisions,... and nothing. That leaves me to a major assumption and I am usually right with these.

In any case,... we could play nice in the sandbox... or we could just be honest, brutally honest, and to educate borrowers, realtors, and loan officers...those who woud read this. Just because you are a loan officer, doesn't mean that you are good or better than a realtor. Just because you might be a loan officer that has 5 yrs, or 10 yrs, or even 15 years experience in the business,... doesn't mean that you are good or great at what you do. It's just sad and it has actually gotten worse this year than last year. i hear more horror stories about how their loan officer promised closings, and they never happened, or were delayed 3 to 5 times. It actually isn't Rocket Science if you know what you are doing.... you could actually know the real true basics and get a deal done, because the other changes, those are rare loans. Many loan officers can't even read a credit report correctly and that is a fact. How do I know? When I question a borrower that has had their credit pulled by 1 or 2 other loan officers... and I go over a unpaid collection or a student loan that says deferment.. and I ask them if it will be deferred for 12 months or more at the time of settlement... and now I am finding out the other loan officer didn't ask these questions.. this is the ROOT of the problem people, and it's very scary... that should be basic mortgage 101.

jeff belonger

The Not a Moron and Catherine Coy if she was serious about her last comment and Lo? right around the first moron comment.

We aren't taxi driver's, we don't have the pleasue of driving crazy intoxicated people around! : )

This was a good post, and interesting to read everyone's perspective.

Lenn, I am not offended if my comment was too long, I got on my soap box, feel free to delete my last comment! Great Post!

MAY

I have all of my new clients get pre-approved by a certain few loan officers that I work with (who are worth their weight in gold) as well as ask questions myself. With Buyers hearing about the wonderful buys in our market - I've got a lot going on and find it's best to hear from 2 sources what they can afford.

Heather. Pay no attention to the gripers. Seems that everytime a real estate practitioners writes about their responsibilities to to their buyer or seller clients, the same loan officer folks object. Clearly they consider us to ignorant to qualify a buyer. However, when a loan falls apart at the last minute, it's a failure of the mortgage process.

Let's face it, real estate agents are on the firing line with buyers and sellers. When something goes wrong, i.e., everyone looks to us for the what/why/when/who, even when we have no control as in the loan approval process.

The loan officer rarely meet face to face with borrowers these days. They take loan apps over the Internet or by phone. With some companies, once the loan app is taken, the borrower communicates only with a processor. The buyer doesn't meet them, rarely speaks to many of them, doesn't understand the loan processing dynamic, investor/broker/lender/underwriter/processor/loan officer, etc. The buyers rely on their agents for answers. We've had many loan officers refuse to even speak with agents and only communicate with the borrower, even when things are going south and everyone knows it.

Yet, we're not supposed to perform a simple calculation to make sure our home buyers are looking in the right price range. Nonsense.

Wow....this was a very insightful comment thread :) As always...the only ones that will come gripe are the ones who just may have something to hide. I have always believed that we leave the jobs up to the professional (i.e. loan officer does their stuff and we do ours) although (THAT'S a big BUT lol) with all that's going on.....some (not all) loan officers are struggling (here) and don't care if they are lying through their teeth....hoping and wishing that it will go through.....that's so wrong...as the agent that is going along with it ....

Lenn...you are always so dimplomatic :) :)

Wow, Lenn, TLW was right - you do have your hands full! In my business, buyers need to be preapproved before I show them homes. I have a few trusted lenders for them to speak with for the initial prequal. Then when the potential clients meet with me, we have a starting point. I have found that the people who are forthright in answering my questions about their financials have no problem getting to closing on time with a reputable lender. People who do not want to tell me about their financials generally have something to hide and won't be working with me. Let someone else waste their time showing them homes, writing contracts, and not closing; I don't have that kind of time.

Same with my sellers. Those who fill out the form and tell me the truth can list with me; those who lie cannot.

P.S. Lenn, I used the Re Blog button to reblog this post as it is so timely and well written. Thank you.

Hi Lenn, I read about your post through TLW -- I have nothing rude to say. I like to send the potential buyer to a lender for qualifying for one reason, and that has to do with the lender obtaining their information, which I don't have access to. For example, when I work with a buyer I take them into properties -- some vacant, but a lot owner occupied. In this day and age, I want someone to KNOW who that person is! I can't ask for their social security or driver's license, but the loan officer can. They do not share this information with me, but I know that if I take a buyer into someone else's home I know someone has their information.

This is definitely a hugely important part of job. I pre-qualify my clients and immediately send them to the lender, to get them pre-approved - hopefully to the point of no conditions, and if there are conditions, we know we can meet those.
A lot of buyers think they will qualify for a certain amount, and are shocked to learn they qualify for a lot less. I wouldn't start showing them properties until we have that pre-approval. No use showing them something they will fall in love with, but can't buy.
We also have privacy laws here that don't allow us to share the buyer's financials or any other information with anyone - no one, not even the seller - but if we are doing our jobs, that should not be a problem.
Great post, Lenn. thanks.

Hi Lenn, As always, thank you for sharing your wealth of information and advice with us. Your continued success as a buyer's agent and team leader/broker certainly does give you credibility to advise us accordingly. For me, I am beating the streets for more and more hours in the day than ever before--buyers want to see many more homes than they did in the past. That has taken away a large amount of my 'reading' time and learning the new lending laws and new packages and requirements that are out there for my clients is becoming increasingly difficult for me. I do, however, connect my buyers with a qualified lender, who I do count on to keep up with his/her reading since that is his/her primary job. I will say though, that I DO review the financial status with my buyers and double check the lender's qualifying statement. Oftentime recently, I have learned something new about a standard that was not in place when I was able to keep up with all of my lending reading!

I guess to sum it up--I 'leverage' my lenders' knowledge for the benefit of my buyers since I have my hands full with tasks that require my own expertise in selling/buying real property!

GREAT post and interesting discussion (to say the least)!

Debe in Charlotte

oh my word.

I had no idea what I was "reading" into...

Back when I first started real estate, it was very common for agents to be the ones who 'pre-qualified' the Buyer client and determined the home search price range. With the growing complexity of mortgage lending it has become clearly more prudent to entrust such processes to those who are specifically skilled and knowledgeable about such things. All the more reason to develop a strong team/network of like-minded professionals in your local market.

Wow... all I can say is wow... this has been quite a read and quite a journeym I'm worn out just reading the comments... I can tell you one thing, when it comes down to it, whether I was a buyer or a seller I would appreciate my buyer's agent going through this process. I have seen many of my staging clients have offers fall through at the last minute at which point they have lost momentum, lost alternative buyers and ended with subpar offers on the second turn around the block... It matters greatly and sure seems doable from Lenn's explanation... I don't get why you wouldn't...

Lenn,

I use loan officers I know and trust to qualify and approve my clients.

There have never been any last minute surprises with them and I trust them explicitly.

Geez oh Pete....TLW's featured post brought me here. How the heck did I miss this?

I was wondering what folks kept blogging on with comments.

So when can I take your class you give new team members?

I have NO iota how to do this, never felt the need to learn as I work with great lenders.

But....

Now I want to learn how to do it.

Sign me up.

Preapprovals aren't what they used to be. In the past, if we ran the deal through DU and got an "Approve/Eligible" it was a done deal. Just collect all of the info required and submit it to underwriting.

Now lenders are overlaying the DU findings with their own internal criteria and in most cases we don't find out until the loan is denied.

I could go into the stupidity of the new HVCC but that's an entirely separate subject.

Steve

Now MORE THAN EVER, with changing guidelines etc, you need a trusted Mortgage advisor on your team. They will tell us more than you, and The Guys/gals in the mortgage Biz that you trust will know what questions to ask, and what answers that will make your gut tie up into knots!

There is a lot more to qualifying than you put here, Income is a big issue in how to calculate it, and what can be used to qualify, and there are also debts that do not need to be counted, and ways to stretch out quaifying by paying down or paying off debt.

I cant stress more: Have a TRUSTED Mortgage Guy/Gal on your team, And Work as a team! Guidelines are changing too fast to keep up with on your own

Wow. This was a fun read. Nice post, Lenn. You definitely wrote about something relevant with this one.

I understand what you're trying to say, Lenn and I'm glad this works for you so well.

I like my buyers pre-approved before we start looking at homes. I have a few fantastic LO's here and if they say it'll close, I trust them implicitely. I've seen one or two fall through (not my own) because the buyer decided to go on a shopping spree, but that was partially the agent's fault for not stressing to the buyer not to run up the credit cards.

I've also had a few situations where I thought there was no way on God's green earth that the buyer could possibly get a loan, and they did. And I've seen what seemed to be sure bets go to a LO for preapproval and have shadows in the closet that they didn't even realize were there (due to divorce, etc.).

I would hate to give a buyer false hope in making them believe they can get financing for a LO to turn them down. On the other hand, I wouldn't want to discourage someone because of my figures when the LO may know how to make it happen for them.

I do ask a few questions, but my reason for doing so is to see how much they will have as a down, do they need seller concessions, etc. I also want to know what type of loan they will be using before wasting my time or theirs showing them homes that won't pass inspections for FHA, VA, or USDA.

Lissa Uder, Your Lebanon MO Real Estate Agent

John E. It would appear so. There certainly is a difference in agents' practices.

Robert. Thanks. I guess I'll just keep muddlin' along.

Missy. One thing you'll find is that old time EBAs like myself have a different view of buyer representation and qualifying and the practices of generalist agents/brokers.

Brenda. Strangly, I have never had any last minute surprises doing the initial price range qualifying myself either.

Joanne. There is a trend in the industry for agents to do less and less. The mortgage industry has persuaded consumers and many agents that the first stop for the home buying consumer is with the mortgage person. I disagree. Every buyer is different but, unless I suspect a credit problem, I'm going to show that buyer some homes and bonding with them before they speak with anyone.

Rich. All in good time. All in good time.

Sheila. Keep reading. It's fun.

Debe. It's definately a smart agent that stays on top of the mortgage market. I too, do a tremendous amount of reading about financing. I'm also alwasy interested in new instruments and help for home buyers. It's my job.

Silvie. Sounds like you have a good handle on your job. I know that as an agent/broker, I am much more comfortable "running the numbers" myself before they speak with a lender. Sometimes it makes a lot of difference in the lender to whom I refer my buyers.

Carla. I just do a Vulcan MindMeld.

Marie. Thanks. I love to be reblogged.

Maria. VERY IMPORTANT POINT. Any prospective buyer who refuses to share financial information with me will have to find another agent.

Sally. Are you telling me that a loan officer would provide a pre-approval letter for someone who can't get financing? Get outta here.

Lenn: Wow you really got things stirred up with this blog. Personally, I have been in this business many years too. I have my financial calculator and I know how to use it. It is unfair to the BUYER to allow them to look at houses that are NOT in their price range. We used to have to pre-qualify buyers on the weekends and after hours and it used to take longer for the lender's to quality buyers, and by pre-qualify, I MEAN find a price range not insure or in anyway imply that they can quality for a loan. I do not represent any lender.

My Team sits down with a potential buyer and we go through a Buyer Consultation, we even have all of the steps to the home buying process and the mortgage process on a flow chart. When a buyer uses my team they make an informed decision. I think that you Ms Lenn do the same, it is good, solid service to the client.

For real hahhaa. Actually...that's not funny at all ...

Lenn, so very incredible and informative reading for the last 2 hours, way to go, can I get a copy of your financial questionaire, I promise not to publish it, thanks.

Steve. 2 hours??? Good grief.

Sally. Thought you'd get a chuckle.

Sandy. THANK YOU. You summed our practice up quite well. Since I refer most of the business for over a dozen agents, I do a lot of qualifying by phone. It works. I just need a price range. I may inquire about credit, but when you've done this as long as I, you know what to ask different folks.

As I said, it isn't rocket science.

I also rely on good experienced loan officers when we're ready to take that step.

I couldn't resist. I'm here >.< I read the first half of the comments before my attention span ran out. This is a great post. And I though it was common knowledge that pre-qual letters aren't worth the paper they're written on. And I have a VERY basic understanding of the mortgage process. But I do rely heavily on my trusted loan officers. I called Jeff Belonger a couple of days ago on a guy I had just met. He's renting a townhouse I just listed... actually, I blogged and made a video about part of it... but I really didn't ask the guy too many questions because I didn't feel like I had a good enough relationship with him yet, to be asking him many personal questions. The possibility of him buying, just happened to come up while I was taking photos of my listing, which he's currently renting. Granted, I usually do have more information before passing them along to a LO, but this time I didn't. And Jeff graciously took over, and even called me to follow up when he didn't hear from the potential buyer.

OK. I'm just rambling. I guess I agree and disagree. But I don't disagree in a manner that says you're wrong. You're probably right. But I've been spoiled by my LO's here in town, and by a few others I've met here on AR.

Lenn...

Missy sent me back ... it looks like I missed all of the good stuff ...again!

Stirring debate, though wholly unnecessary.

Interesting how sensitive everyone often is about guarding their purported turf. I see no harm in a little cautionary redundancy. Big leap that many mortgage brokers on this thread are making as to your ability to qualify a buyer. I believe that no Realtor can definitively qualify a buyer based on knowledge gaps and ever changing standards, but I firmly believe we have it in us to DISqualify the "wing and a prayer" type buyers who stand very little chance of actually closing despite boasting a dubious prequal.

Everybody settle down. No one is downplaying the expertise required to do the LO's job. Don't downplay our right not to waste the time of both our clients and ourselves with a few basic "rule out" calculations. No, running simple ratios does not mean the buyer will obtain financing, but if they fail even this basic test, much time and future consternation could be averted.

How is this a problem?

And by the way ... I'll stop running numbers on the buyers I put in my car when you stop telling them that they can always offload closing costs on the seller in this market. Deal?

Like Missy, I initially missed the fireworks, but after reading Billie's post in your defense, I had to come back. Oh, wow. I noticed that for most of the offending comments, you either ignored them, or attempted (at least that was the impression I got) to delete them. My initial apprehension at tackling the process of prequalifying buyers is now quite overcome, and I would like to know if there are general guidelines and rules (sort of like a tutorial) that you can put together to guide those of us without the experience to help our buyer clients (as I am certain that the specific rules for doing so vary from state to state).

P.S. After reading the comments from "not a moron", I must ask...is he serious? As in, does he really think he isn't one? How absolutely delusional. Had he been civil and not anonymous in his disagreement, I don't think there would be a need for any nastiness, but...hmph.

P.P.S. Thanks Lenn for giving all of us some excellent advice to chew on...this is tough stuff indeed, but very necessary.

Lenn - Your other post brought me here and I havent READ all the comments but I have bookmarked it. Your post have shed a new light in the way I do things.

I used to just send my clients to my lender to let him do the qualifying, etc.

I think I want to re-think my strategy.

Thanks for pointing it out.

But how do you keep up with the changes and the new guidelines? Dont you need to be fed by your lenders you work closely with?

Lenn.... I like Paul's comment... : Paul's comment.... It's short and point on. As I talked about this blog in a conference call of mine. I don't care for realtors to fully qualify someone... but as paul mentioned, what's wrong with disqualifying someone, under easy ratios with assets. If they can't pass this test, could you be wasting your time? Maybe... hence why you send them to your trusted loan officer. And who knows, maybe they can buy, but you didn't waste your time. This has been a fun post, because of some of my fellow loan officers that either left their name... in which I did some research on and found some VERY interesting things... or you had anonymous loan officers not sharing name or profile, hiding, because they just wanted to kick and scream and make fun of someone. These are usually the ones that don't know squat. At least from my experience. thanks

jeff belonger

Hi Lenn - This is a good post and it is clear that you give your clients excellent service (and save yourself a lot of time not showing people places they can't afford). With such a straightforward post, I'm surprised that you have seemed to attract some kind of firestorm. Seems like you have handled it well, though. Good job!

240+ comments? Crazy.

Why so controversial, this pretty fundamental point?

Contracts failing for something that should have been at Step 0 of the process is costly, frustrating, and unnecessary...

MAY

This may be an AR record for comments, you just never know what's going to strike a nerve.

Lisa. You wrote:

but I really didn't ask the guy too many questions because I didn't feel like I had a good enough relationship with him yet, to be asking him many personal questions.

If there is a sign of interest in a property, I simply say: "Let's find out if we're in the right price range for you. Let me get my trusty calculator. First, what's your annual income?

One question leads to another. It's just so easy. You have to understand that the average consumer wants to know what they are qualified to buy. They welcome any help they can get. I may find this easier than many agents because I do it about 10 times a day. However, it gets easier. I'm usually working over the phone. In person, I just follow my Financial Statement and "run the numbers" to get a qualifying profile.

I would say that if an agent isn't comfortable qualifying a prospective home buyer, they should NOT until they learn how. Practice, practice, practice.

Richard. Shucks. You know all this stuff.

Paul. Right on target. Once a loan officer presents a qualifying letter that states that the buyer is qualified for $XXX with 6% closing cost help from the seller, we are in a worse position than before.

That buyer will always believe that it's routine for them to ask for and get 6% from the seller. HA! Tell that to the home owner who expects to net about $114.00 from the sale of their property.

I don't want a qualifying letter that dictates the terms of the offer. I want to know how much money my buyer is qualified to borrow. Which, of course, is one reason why I do it myself. If I have a buyer who has no money, they are going to be limited, severely limited.

Shucks. I just need a price range to research homes listed for sale to prepare a tour.

William. Qualifying buyers will come from practice, practice, practice. You can probably get some CE courses in real estate finance. If not, ask your broker to do a workshop. I do it with agent one on one. Yes, then I give them homework.

Loreena. I get regular updates of new loan guidelines from loan officers in my area daily. However, keep in mind that all I'm doing with my Financial Statemen is determining a price range and "disqualifying" buyers who have had a recent bankrutpcy, previous foreclosure, recent late payments, etc. What I find is that most folks who contact me are qualified.

Jeff B. Paul's comment is, as usual, spot on.

Also, read Ken Cook's comment. He understands that I'm determining a price range to tour homes, not taking a loan application.

Susan. The reaction to this post was not surprising. For years there has been a campaign on the part of the mortgage industry to make the loan officer the first point of contact for home buyers. I believe that the first point of contact should be a good buyer's agent.

We disagree. Often when folks disagree, they feel the need to be disagreeable.

Daren. Thanks. I don't have contracts fail. Further, when I refer a buyer to a loan officer, there is no question about the buyer qualifying for that house/contract. The question of what loan instrument to use or loan type may change when my buyers get the GFEs. But, they are definately going to qualify for the price range.

Cindy. No where near a record, but definately interesting.

Lenn, at one of the home builders who had me in their employ (a big one) they had their own mortgage company. Part of our job (which we hated) was to have them fill out the loan package on site- it was sent in with the contract/addendums.

Being forced into the surface level of getting a mortgage created no fear with requesting all docs required (this was in the late 1990's- early 2000's- a much simpler time) because if we didn't have the loan package submitted with the contract, it was kicked back.

Things have changed BIG TIME, but the simple act of surface level qualifying stuck- why on earth wouldn't a real estate agent go through the basics, particularly now, in order to get a grip on the person with whom they are spending their time (and for whom fiduciary is required)? I don't understand the controversy- how does one locate a house blindly, if for whatever reason, a home buyer hasn't yet engaged in a formal application (which is the ideal situation)?

Laurie. The reason, IMO, there is so much controversy when I write about this subject, agents qualifying, and there always is, is because loan officers want commitment from home buyers early in any buyer's home buying process.

However, it is not appropriate, in my view, for a buyer to be commited to a loan officer/company before they even know where or what they wish to buy.

We have areas where properties may be eligible for USDA loans but not all mortgage companies do them. We also have FHA 203(k) candidates and not all mortgage companies do them.

Agents, IMO, need to be knowledgeable about our buyers needs, not the need of the mortgage company for another borrower.

If loan officers want a larger market share they should be competing with each other, not with real estate agents.

WOW...what a discussion! LENN I appreciate your simple calculations. I think overall many Realtors are afraid to ask the tough questions of their prospsective buyers. And we all know Math scares a lot of people in general. However by having a good idea IF the buyer you are intending to work with CAN actually afford the houses they want you to show them aren't in the end you increasing the probability the closing will succeed...of course. Don't let fear be a factor in determining the range of possibilities for your customers!

Beautifully Done Lenn!

Allison. Thanks. With today's calculators, qualifying a buyer is easy.

Fear is overcome by experience.

Lenn...

I don't understand some of the defensiveness I have witnessed on this post. It boggles the brain. Why would anyone show houses without first establishing what price range the Buyer needs to be in. I personally would never want to get a Buyer's hopes up by showing houses they can't afford. It's just not right. It's hard on the Buyer and even harder to explain to the Buyer why you didn't pose the basic questions.

That's it for me. Don't tell Blog Boy I'm talking Real Estate. Every time he finds out he makes me talk RE with him. No way Man. I prefer to just boss him around :)

TLW...ROAR!

Thanks TLW for your supportive post for Lenn - intriguing to say the least. There are as many opinions in our industry as their are pennies. But I have to ask this community to please keep it civil. Our clients are reading this. Whether you agree or disagree - SAY IT PROFESSIONALLY PLEASE!

TLW. You're right of course. It's also a fact that few understand the duty of fiduciary. We have a distinctly differing relationship with a buyer or seller than does a loan officer.

I never do a prequal of my clients myself. I have a senior loan officer from a funding lender do it. In the last several years I have not had one client pre-approved get turned down for a loan.

I prefer not asking clients for personal financial info and if they are borderline, the loan officer can have an underwriter review it up front.

Lee and Pamela. Thanks. You are right, of course.

Randy. I don't have folks not qualify either. I'm just qualifying for price range.

Your blog is off the charts..LOL

Gene and Tim. I am the broker/owner. Practice and Procedures are in place.

In fact, it is in our BA Agreement that one of the duties of the home buyer is to provide financial information as requested by the agent/broker.

BTW, if agents and brokers are not expected to qualify home buyers, why is it taught on real estate school and CE on a regular basis?????

Lenn

I think you meant "Kim" That's my boss..LOL. I had to check back with you and man! Had a tough time finding your response amid all the posts.. Just to clarify...

It would appear if your BA (Buyer Agency Agreement) I presume, contains that language then you're probably gonna be OK with "detailed" financial information provided you had your legal counsel give the thumbs up. My opinion.

The only reason I would not allow my agents to delve deep into buyer financial info is not that they would then posses vital data or confidential info, it's the decisions they would make because of their "qualifying practice". In other words what happens when they decide to "disqualify" a buyer and refuse to work with them without possessing the proper expertise in that "field". If they possessed a valid mortgage brokers license I would have no problem but since they are not experts in that field I am more comfortable with them referring buyers to people who are. Liability is something we minimize whenever possible. In our current litigious minded society, the potential for some disgruntled buyer suing the company because an agent singled them out without expertise in the mortgage field is something we will not chance.

Many classes teach wrong approaches and it isn't until enough lawsuits are filed do the teaching change throughout the industry.

But having said all that Lenn I support your decision to run and operate your brokerage firm in the manner you choose. Good blog!!! Looks like it keeps you pretty busy...:)

Gene

Lenn - You really know how to ruffle the feathers! Well done psot and good job managing all the comments. As far as the subject matter, I prefer to let the mortgage reps discuss personal finances with the buyers I work with. That said, they must be lender approved before we start out looking.

I wish I dind't miss out on all the fun!

MAY

Gene and KIM.

You wrote: The only reason I would not allow my agents to delve deep into buyer financial info is not that they would then posses vital data or confidential info, it's the decisions they would make because of their "qualifying practice". In other words what happens when they decide to "disqualify" a buyer and refuse to work with them without possessing the proper expertise in that "field".

Gene. IMO, if an agent isn't sufficiently trained and practiced to qualify a buyer for a price range, they should surrender their license and get a job. WE are the ones who help buyers locate homes to buy. In fact, when a borrower is rejected at the last minute (which is the scenario that started this entire thread) it is the loan officer whose loan processing has failed. Agents can't disqualify a buyer for a loan. We could, if unskilled in our job, show and write a contract for a buyer in the wrong price range, but we can't cause a loan process to fail.

If they possessed a valid mortgage brokers license I would have no problem but since they are not experts in that field I am more comfortable with them referring buyers to people who are.

I do not have a mortgage broker's license, yet I can qualify a buyer for price range. It's a part of my job and one I'm not going to relinquish to a mortgage broker. When someone comes to me already "pre-approved" by a mortgage broker, my first question is, "at what interest rate"??? The buyer never has a clue. At that point, when I back out the qualifying price range for which the mortgage broker qualified them, I often find that they were qualified with "teaser rates", 2.5%, 3%, etc. In fact, yesterday a buyer sent me a copy of a GFE from a national Internet lender and they were "pre-approved" with a rate of 4%. Yet, the broker did not explain to them the added cost of that rate. The GFE had "0" for points.

I knew that this buyer wasn't qualified for the price range given them by the mortgage broker. If I had taken them out and they fell in love with a home in that price range, sooner or later, they'd have been very disappointed.

Liability is something we minimize whenever possible. In our current litigious minded society, the potential for some disgruntled buyer suing the company because an agent singled them out without expertise in the mortgage field is something we will not chance.

Liability??? I am the most rick averse real estate broker in the country. Which is why I believe that real estate agents and broker need to take responsibility to learn their business and not go blindly through transaction not knowing what is going on, with eyes glazed over when the conversation gets to a few numbers.

Seems to me that the trend for agents to farm out their responsibilities is more risky than to learn their jobs. We are paid a lot of money when we close a sale. We need to earn our pay and not just collect it.

Carol. Thanks for stopping by.

I won't go into my procedures buyer brokerage. I have learned over the years how to generate buyer clients and much of it is different from most agents.

So be it.

Jeff,

When you have a moment check out www.united-credit.org. The program has done wonders for my clients with credit issues.

For many years we hired other agents to represent my builder-husband as I was not active and I always figured it would be easier on the marriage not to work for him! But what a pain in their rears we were. . . we always insisted on seeing the financial statement and doing the math outselves before we accepted an offer and took a property off the market. Then the whole pre-qual issue reared its ugly head and selling agents starting giving us pre-qualification letters instead of financial statements. That's when we started putting contingencies with very short time limits in our counter-offers that basically said we wanted something from the lender saying they had pulled credit, verified funds and employment, and that the buyer had the ability to complete the sale based on this information. Some lenders weren't happy with this, they didn't want to go out on a limb for us; and many agents were not happy with this, but we insisted and they normally came around. As a consequence, we never had a contract fall thru based on financing, and those marginal buyers who would have posed a problem the week before settlement just went away in a week instead of 60 days. Ahhh, the good old days! Then came the days when anyone could get any loan and new agents never learned how to qualify, it was too much work. These were the bad old days that led us to where we are now. I'm happy to get back to a time when Realtors will rely more on their own knowledge and hard work, than on the LO down the street or over the internet. It's all part of the job to protect our sellers and our buyers.

MAY

Lenn, Wow! All I can say is that I'm glad this is your blog & not mine. I've been reading through for an hour & that includes skipping some of the commentary. :) You know, I'm so thankful that early in my career, someone took the time the help me understand the mechanics of qualifying a buyer for price. And it was a loan officer! That information has proved invaluable to my career in more ways than one. Your responses to this blog post demonstrate your professionalism in a very practical way.

Lola. You are so right.

I first learned how to qualify in real estate school. It didn't sink in very well.

However, once I got into the business on a daily basis, I knew I needed to have this skill. That was back in the days when our calculations required the use of "factors". What a pain.

Do you recall the loan officers whose business cards had "factor" tables on the back???? Funny.

The new calculators are wonderful. Not so new. I believe they came out in about 1999. I purchased my trusty Real Estate Master qualifyer and practiced about 100 scenarios. Once I got a handle on it, I could qualify anyone.

Still can.

Nancy. Great experience. I can recall getting "lender letters" for buyers when the loan officer hadn't even looked at a credit report. Of course, it took about 7 days to even get a credit report until the mid 1990s or so. So, if the loan officer hadn't looked at documentation, they were just printing worthless letters.

In those days, we wouldn't look at a contract withut a Financial Statement. I still won't.

MAY

Lenn- all I can saw is Wow...like Lola I am glad this is your blog...you have handled this well IMO, and hey, for what it's worth, I tell my clients NOT to go with what the lender qualifies them for, but what they can realistically handle, including the need for reserves. I just don't like to see people buying what they can't afford.

Kathy. I don't either. It's up to the buyer what they believe that their comfortable with paying. I also encourage them to qualify for less in older homes because I know that maintenance is very, very expensive.

MAY

Lenn, TLW sent me over here. I'm at an OPEN and so I was going to come in and do some commenting. I've been reading this post for quite some time now and I guess the key word is "WOW"! Thanks again for another amazing post on how we should be looking at doing our jobs better and at the highest professional level. Also, thanks for a great lesson on how to manage one of these "diverse perspectives" posts that goes negative and nasty. I like the way you've handled it. Deleting nasty is a new policy for me. I've been in on a few of these and they just go nowhere. This post has sorted out nicely and been a great learning experience for many. Thanks Lenn! I'm going to feel a bit better about "getting pertinent information on buyers" going forward. Thanks to Jeff Belonger for his insights and investment. I really liked Rich Jacobson's take and Paul Slaybaugh is always on target!

MAY

Jeanean. Thanks for dropping by. Rich understands the importance of qualifying your buyer for price range. That's what I do.

However, I don't agree that loans are now so complex that we need a loan officer to be involved early in the home search process.

Example: I'm working with a lovely couple looking at new homes. They will likely use a builder's mortgage company because we'll increase the builder's incentives. The last thing I want at this point is for a builder's lender to have their financial information before we have an opportunity to maximize their incentive.

Builders' reps always "encourage" buyers to speak with their lenders which means they get to pull a credit report and know the buyer's finances up front. I prefer to do some negotiating first. Then when we are close to contract, it's fine.

Besides, I certainly don't want my buyers to have to deal with 3-4 builders's loan officers before even deciding on a location/model.

Lenn, this is new to me. I've just started doing a subdivision and this premise has never occurred to me. Again, this post is going to help me do a better job. Thanks for handling the post so well. The result is that I've learned a lot. I am Going to use your checklist (have a financial sheet from doing short sales). I do a rather informal version, however it so makes sense for us to know what our client can do and wants to do. I have a very good LO and I've relied on him to validate, however while some called it control issues....I call it doing a good job for the consumer. Thanks for this last bit of information on new home purchase....in my case the builder has done a good job of staying competititve. They are at rock bottom but will play some. Other builders in our area would be different. Great examples all along the post on why and how we should be doing this. Just a Great Post in general!

Thanks Jeanean.

Sure, some folks think I'm a control freak. Could be. However, considering the money we're paid to sell homes, it behooves us to know what's going on.

No one will accuse us of being a taxi driver. Wait!! That happens regularly.

JUN

You certainly hve engendered a lively discussion here. Some of us are lucky enough to work in an office with easy access to competent LOs. Even so, we shouldn't forget the training we got when we were new, and ask good questions.

Brian. Agreed. Many of us have competent LOs but it's still a good idea to make sure they are not leaving the work to a processor.

JUN

Lenn, as others have commented you have brought to my attention that I too need to change my strategy and fine tune how I work with Buyers for my Sellers or when I'm representing Buyers. Thank you for sharing your wealth of experience and what has made you a success. You and so many others is what makes AR the best Real Estate network out there. Thanks again!

JUN

Lynn. Thanks for commenting. Indeed, good representation is important for buyers too.

JUL

Thanks for the blog. I agree with your points to an extent. Yes, its our job to qualify. However, I don't have time to crunch the financial rankings of all my buyers. This is a great strategy if you are working with a buyer who has their OWN lender. But, for all others who use one of my PREFERRED LENDERS, I know for certain that my clients are qualified or not. Because I only work with the best lenders who do the leg work for me, it helps me put my time where its better suited, such as real estate, and not math! Have a great day!

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