There is No Such Thing as a "Golden Buyer" Anymore - GET PRE-APPROVED FIRST!!!

By
Mortgage and Lending with Los Angeles & Ventura Counties in CA

I recently came across What do you mean, you need a letter from my Lender? by Tish Lloyd and it reminded me of some of the referrals I'm getting lately as well as some of the prospects that are contacting me.  Tish blogs about the "old days" and what Realtors used to do back then.  It reminded me of my own "old days" (circa 2002) where prospective buyers could "lock & shop".  Buyers would get pre-approved, lock in their rate and then go shop for a home.

Needless to say, those days are over and for a lot of Realtors (like Tish) so are the "old days" of taking out buyers who haven't been approved for a loan yet.  So many of the referrals and prospects that contact me start out the same,

"I make XXX,XXX a year, I have a phenomenal fico score, I've got XXX,XXX to put down.  I want to buy 123 Whatever St. in Anytown but my Realtor told me I need to get a pre-approval before I can make an offer". 

Like so many prospective buyers (as well as so many of their Realtors/agents), they think all they need is a good income, money in the bank and a great fico.  I assure you, I wish it were that simple but unfortunately, it is not. 

There is no such thing as a "golden buyer" these days unless, of course, they have a ton of money that can be verified and documented.

First and foremost, I want to strangle the BA's (until they're blue in the face) showing these referrals and prospects properties without a pre-approval but if those BA's want to waste their time, energy and resources showing unqualified buyers properties they can't buy, I guess that's their prerogative. 

I say it all the time and I'll say it again, "the loan process is so complicated and convoluted these days that prospective buyers really need to talk to a lender as soon as they start thinking about buying a house, not after they spent weeks looking at properties and finally found one they want to make an offer on".

The biggest issue I see with many of my referrals and prospects these days are they're self-employed people and while it is true that they make a lot of money, the fact that they write off a ton of it generally makes them unable to qualify for a loan. 

It's kind of astonishing that I have to explain to these really intelligent and successful people that when they write that income off, it is no longer available to be used as qualifying income.  It's just amazing how shocked they become that they can't write off most of their income and then turn around and use that same income to qualify for a loan.

Secondly, while it's nice that so many of these folks have managed to save up huge amounts of cash reserves, however, in order to be able to use these cash reserves as their down payment, the funds have to be in their own account and preferably seasoned for at least 90 days.  Furthermore, depending on the loan program, depleting business accts (even if you are the sole owner or primary shareholder) can be a deal breaker in most cases unless, of course, the business is buying it as an investment and that is a whole other scenario.

Lastly, while it's great that not only have these folks been able to establish and manage a successful business but they've also been able to maintain phenomenal fico scores in process.  BRAVO!!!  WHO HOO!!!  HALLELUJAH!!! 

This is wonderful however, it doesn't matter if you have an incredible fico score because if your debt-to-income (dti) ratios are too high, the highest fico in the world isn't going to allow you to qualify for a loan. 

Lenders and investors are much more stringent these days on dti ratios than they ever have been.  While your great score can be a really strong and compelling compensating factor, you're going to need a lot more than a great score to compensate for those horrible dti ratios.

Anyway, the point is (I really do have one) that regardless of what you or your Realtor thinks you may qualify for, until you speak to a lender, all the money you make, how much you have to put down and those fantastic ficos don't mean squat - SERIOUSLY!!!  It takes more than that to get a loan these days.  Lastly, and I can't emphasize this enough, Realtors:  stop wasting your time, energy and resources showing properties to people who aren't qualified to buy.  SERIOUSLY!!! 

Save your time, energy and resources for those that are serious buyers and by that, I mean those who have done what's necessary to qualify for a loan and have been pre-approved.  I don't care what their grandiose excuses are or how confident they are, if getting a loan won't be a problem for them then talking to a lender and getting pre-approved will be a piece of cake - RIGHT???

Buying a home is one of the most important decisions someone can make.  Today's real estate market can be really scary, which is why it's important to get as much info as possible before starting your search.  The home buying process is not a simple process and it's because it can get really complicated and convoluted, that borrowers today need affordable loan options that are best suited for their own needs.

For more info on how you can get pre-approved for a mortgage loan, please contact me, Donne Knudsen, at 805.2069123 or donne4loans@earthlink.net.  That's what I'm here for and I would love to be able to assist you in your search for an affordable home loan.  

 

Pictures courtesy of flickr:   leomitch   lochman67   bwehr6   giacomomacis

Posted by

 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 Donne Knudsen

Realtor® - CalState Realty Services

DRE#: 01364050 / NMLS#: 249822 

 

805.2069123

 

E-mail   My Blog  

Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance

Los Angeles County  --  Ventura County

© 2010 - All Rights Reserved

Comments (69)

Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Donne, excellent post. So many people think they cab go online to a site that allows then to estimate mortgage payments and feel they know how much they can afford to buy. They find a house, then go to a qualified loan officer and get shocked. No tickee, (pre-approval letter) no showee. Gas and time are too expensive.

May 16, 2011 10:37 AM
Barbara Altieri
Better Homes and Gardens RE Shore and Country Properties - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

Donne -- I was JUST discussing this with an associate a few hours ago.  I don't waste my time without a preapproval.  Been there, done that, got burned. GREAT points on the self-employed and their 'misunderstanding' about their income.

May 16, 2011 11:16 AM
Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE

You mean I really make less after writing off stuff?  lol. Bottom line...speak to you...the wonderful loan officer with loads of experience and info to get preapproved!

May 16, 2011 12:42 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Donne - It's certainly not the same old world it used to be, and it makes perfect sense to be pre-approved, especially with stated loans not being what they were.

May 16, 2011 01:18 PM
Dustin Oldfather
Ocean Atlantic Sotheby's International Realty - Rehoboth Beach, DE
Delaware Ocean & Water Front Homes

We work in a secondary market where many buyers come into town with significant assets and expect financing to be "no problem." This year we have had more than one client with 7 figure assets who were unable to get financing. It was a bigger shock to them than us, but we now share that with high net worth individuals to save everyone an awkward experience. 

Warm Regards, 

 

Dustin Oldfather

May 16, 2011 02:31 PM
Anonymous
Anonymous

I'm a new agent, so perhaps I'm missing something here. But how you can a buyer have full underwriting approval for a loan before they've even started looking for a home?

Someone break it down for this newbie :P. 

May 16, 2011 03:03 PM
#56
Markita Woods NMLS#196099
American Financial Network - Woodbridge, VA
Queen of Mortgages - FHA, VA, Conventional, USDA

Donne:

Excellent post. I have now started submitting pre-approvals for credit underwrting too as mentioned by #48.

May 16, 2011 03:50 PM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Ed - Don't even get me started on those useless mortgage calculators and this is why I do NOT have one on my website.  They're garbage and I will not give someone the impression they can qualify for an amount that may not be realistic.  In order to know how much a buyer qualifies for, they must talk to a licensed and experienced MLO who has reviewed all of their personal, professional and financial documentation.

Barbara - Unfortunately, so many Realtors/agents learn this lesson the hard way just like you did.  As for self-employed, so many of them just don't understand that when they write off income, that money is no longer considered disposable income.

Celeste - It's just shocking how many successful business people just don't understand that concept.  When you claim income as an expense to the IRS, you can not turn around and use that expense as income.  Thx for the kinds words.

Christine - I am actually a fan for the stated loan for certain borrowers.  The bad rap that stated loans got was when they were sold to people who should have never gotten them.  There is a place in our market for the stated loan buy it should only be used for very specific borrowers.

Dustin - I discovered a long time ago, that those with high earnings and large assets also tend to have equally high dti ratios as well as large amounts of write-offs.  The last two characteristics tend to wash out the two first characteristics.

Thx for stopping by today folks; I really appreciate it.  Have a good night everyone and a great week too.  :)

May 16, 2011 04:00 PM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Newbie - There is no way a prospective buyer gets a full approval without a property, an appraisal, a clear title and a boatload of other documentation.  However, a prospective buyer can receive a conditional credit approval with half a boatload of documentation and an actual underwriter approval. 

However, most lenders are not doing conditional credit approvals without a property so a pre-approval with an automated underwriting (AU) approval is the next best thing.  While this is not a conditional credit approval, it is much better than simply pulling a credit report without looking at one piece of documentation, which is all that those unlicensed order takers bank reps at the big, large, national, retail banks have the authority and incentive to do.

Markita - I have a few lending sources that will allow for TBD properties but most of my faves won't, they simply don't have the time or resources.  I've been pre-approving my clients for 8.5yrs and I am extremely thorough.  As I've stated before, my pull-thru rate is very high, so when I pre-approve someone, chances are if they don't get to the closing table, it won't because I missed something during the pre-approval process.

Thx for stopping by folks; I really appreciate it.  Have a good night folks and a wonderful week too.  :)

May 16, 2011 04:42 PM
Reggie Green
Team Green at Fairway Independent Mortgage Corporation - Scottsdale, AZ
Branch Manager, Top 1% Mortgage Originator

Laughed out aloud at your blog.  I get this everyday as a lender - the IRS allows me to write off all my income.  I'm sure the IRS wants you to pay taxes on less income than you are making. 

One suggestion - we are getting a lot of loans through by having the borrower set up a monthly direct deposit from an IRA or retirement account.  I have gotten this through with one installment and a letter saying they will be getting this for the next 3 years. 

If you have a borrower that is older - this may be a way to help them get a new home. 

Great blog

Reggie Green

May 16, 2011 04:54 PM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Reggie - Thx for the tip, I actually haven't heard about this but then again, most of my borrowers are at the other end of the spectrum.  I work with a lot of 20-something, first timers so borrowing from their IRA's or 401ks isn't usually an option since many of them haven't been working that long.  However, with some of my older borrowers, some of them do end up borrowing from their 401k's.

Thx for stopping by Reggie; I really appreciate it.  Have a good night and a great week too.  :)

May 16, 2011 05:25 PM
The Scott Loper Team Bux-Mont Premier Properties
Keller Williams Real Estate - Montgomeryville - Lansdale, PA

Hi Donne,

We are running into more and more people who want to move but can't.  It is tough news to deliver to a client.  The earlier the financials are explored, the better!  Even people with great credit and good income can run into trouble depending where they are with their current mortgage versus home value and how much cash they have to work with.

Lisa

May 17, 2011 02:25 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Lisa - It's a very common problem out here too!  For so many people, it's frustrating to learn that after establishing a successful business, savings gads of money and maintaining exceptional fico scores, that they can still be turned down for a loan.

Thx for stopping by; I appreciate it.  Have a good day and a great week too.  :)

May 17, 2011 04:31 AM
Jayne Clement
Keller Williams Realty - Los Feliz, CA
Los Angeles Short Sale Agents

I have to admit that I too was one of those crazy BA's that didn't insist on the pre-approval "in writing" from my Buyers...especially in the beginning of the relationship.  I didn't want to imply that I didn't believe them when they told me it would be no problem. 

That is until I got burned for the 23rd time!  Now...no, I don't believe them.  Show it to me in writing and then let's go shopping.  Otherwise, call another BA (they'll all learn in time).

Good post.

May 17, 2011 02:54 PM
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Eighteen Years Experience in Brevard County

I have a draft post on one of my other blogs about the same thing. When will buyers learn to make the step that matters most, first?

May 18, 2011 12:28 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Jayne - LOL Well, better late than never Jayne! Some Realtors/agents still haven't learned after been burned even more.  Just reminds me of that really great saying, "You just can't fix stupid".

Gary - Put it up!  I would love to read your perspective on the topic.  We all have our own opinions, experieces and advice - put yours out there!  This is a good topic that buyers and Realtors and agents need to read about and consider.  Pass the message along.

Thx for stopping by folks; I really appreciate it.  Have a good day and a great week too.  :)

May 18, 2011 04:14 AM
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

Back in the late 80's and early 90's it was tough for people to get loans in our community - and we sold a lot of homes and land with seller financing.

I guess it won't work any more, since most people have a huge mortgage to pay off when they sell.

May 20, 2011 06:12 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Marte - I've heard about seller financing from some old timer MLO's but I personally have never done a loan with seller financing.  However, having said that, I think our market here could be primed for some time of seller financing.  We have a lot of cash investors scooping up properties here and they could be in a position to help finance some buyers purchases.

May 20, 2011 10:32 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Donne,

I will sometimes take a new prospect out to look at homes once before we have to find out how we are going to pay for it.  It helps me establish a relationship and gives them a taste for the market. 

But shopping without your funding lined up is worthless.

May 28, 2011 05:41 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Gene - I just realized that I never responded to your comment.  Don't know how that happened.  I totally understand the "one free ride" so to speak.  I know several Realtors/agents that will do that as sort of a courtesy.  Anything more than that though is a waste of everyone's time.  Thx for stopping by; I really appreciate it.  Have a good day and a great week too!  :)

Oct 09, 2011 07:04 AM