Nevada Real Estate >> Las Vegas Real Estate Specialist: There is No Such Thing as a "Golden Buyer" Anymore - GET PRE-APPROVED FIRST!!!

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

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

 

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

 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

Comment balloon 68 commentsDonne Knudsen • May 14 2011 04:39PM

Comments

Yay! First one here! Suggested!

Love how you put this one out there. You are RIGHT! I have previously wasted time as a BA with someone that wasn't able to qualify, despite making a LOT of $$$$$ - small business owner, wrote off so much she didn't have enough actual income left to qualify!

Saving this one, may be back to re-blog!

Posted by Allen 2222 over 8 years ago

Donne, well said. Too many people think just because they have fantastic FICO's that is enough. I appreciated you mentioning the Debt ratios, very good to spread the word. I have potential buyer inquiring and I just tell them what the first step is.....some do not like it Oh Well.....

Posted by Endre Barath, Jr., Realtor - Los Angeles Home Sales 310.486.1002 (Berkshire Hathaway HomeServices) over 8 years ago

This is sooooo true!  I have experience in the old old old days (1980's)---talk about it really being different!

Posted by Virginia Gingras (West USA Revelation) over 8 years ago

This is a great post.  I suggested it also.  I always, always, have my buyers give me their pre approval letters first. 

Posted by Lorinda Ward, Serving, Hampton Roads Virginia. Norfolk, Chesapeake, Va Beach (Keffer Realty) over 8 years ago

Donne ~  Excellent post and I appreciate the shout.  Trying to explain the stringent and ever-changed guidelines meets with a look of  "Yeah, right -- that doesn't apply to ME!"  Get pre-approved for yourselves -- not for me -- for YOU!  Had to lean . . .

Posted by Tish Lloyd, Broker - Wilmington NC and Surrounding Beaches (BlueCoast Realty Corporation) over 8 years ago

Amen!  Amen!  Amen!  You tell 'em Donne!  Whether lender or agent, whining and groaning and waxing nostalgic about the ol' days is a waste of time.  It's gone!  Face reality!  Pull yourself up by the bootstraps .. and get on with it.  Either that .. or leave the business.  That said .. lol ... you are so right about buyers needing to get to a mortgage lender that looks over their financial standings and credit thoroughly.  Not just a quick run-through PRIOR to an agent taking them out to view properties.  What a waste of time for all if this is not done.

Plus .. you and I both know, it may not even end-up being the buyer that sinks a deal these days.  It may be the property they are hoping to purchase.  It takes a lender that sees the whole picture ... and a lender that knows and understands how to successfully navigate the processing it takes to get challenging files to the closing table.  Okay .. ranting done!  And reading your comments above, I'm beginning to believe I may be the grandfather of mortgage lenders here on the Rain.  Jeesh I feel old ... as I remember the mid-to-late 70's and how loans were approved back then!  I'm going to go take a nap ...

Gene     

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) over 8 years ago

Donne--I hope you feel better now that you got this off your chest! :-)  I would agree with you that one of my favorites are the self employed who want to say, 'But, but, but...I make so much money!'  They cannot have their cake and eat it too!

Posted by Pat Haddad, ABR, CRS, ePRO, GRI, Carmel, Fishers, Westfield IN Real Estate Expert (Keller Williams Indianapolis Metro NE) over 8 years ago

Donne....this is pretty much what I tell all my prospective buyers.  Get Approved!!

Posted by Christine Smith, Exclusive Buyer Agent & Attorney, Canton, MA (Buyers Brokers Only LLC - www.BuyersBrokersOnly.com) over 8 years ago

Alison - The small business owner is in a really tough spot.  On some levels, I understand where they're coming from but then again, there are other times when the red flags are literally smacking me in the face. 

Endre - The thing that astonishes me so often are that these are not ignorant or naive people.  These are highly intelligent and successful business people.  Good grief people, it's a pretty simple concept:  when you write off income as an expense for your tax returns, you can't turn around and tell your lender that you were just joking and you really don't have that much expenses.

Virginia - Now, those are the old days.  Kind of make myold days a bit of a joke.  LOL

Lorinda- Good for you!  You are one of the smart ones that doesn't waste your time on unqualified buyers.  I don't care how great someone thinks their qualifications are, until they get pre-approved, they're unqualified to me.

Tish - Loved your post; really inspired me.  I've had this sitting in draft ever since you wrote your post and just finally got around to posting it.

Gene - Hey gramps my friend, you know you are the Loan Guru in my eyes.  I'm sure you have a few "old days" stories to tell too.  I just seem to be getting so many more of these lately.  I had one the other day who had the audacity to ask me if he could qualify for dpa after I told him that based on his AGI, he couldn't qualify for that 550k loan he needed to buy that 800k house his Realtor showed him. 

While his AGI did put him in the income range of a single low income borrower, I told him I would have a hard time explaining his gross income (extremely impressive according to his tax returns) and his equally humongous (and I mean massive) cash reserves for someone whose AGI wasn't much more than minimum wage.  Let's say it together - RED FLAG!!!

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

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Pat - It's so true that so many people think as long as they make great money, their "golden".  LMAO!!!  Whats even funnier these days is when I hear Realtors/agents telling me that.  Just this week, I had a Realtor contact me with his clients contact info and was telling me the same story,

"My client makes XXX,XXX a year, they have a boatload of money to put down and their ficos are in the high 700's.  They shouldn't have a problem getting a loan".  They're golden.

ROTFL 

Without going into the gory details, they won't be putting that person into a home anytime soon, unless that person has a lot more money stashed somewhere that they didn't tell me about.

Christine - Good for you!  Glad to hear you're not wasting your time, energy and resources with unqualified buyers.

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

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Donne, excellent blog.  Every Realtor I work with will not put a Buyer in their car until they have been Pre-Approved.  You can't go off of what buyers tell you, you have to look at credit and income, especially credit.  What they tell you and what you see tend to be much different many times.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 8 years ago

Latest one here, and I suggested, too.  Buying property these days isn't easy.  And, having your job would make me drink....early and often.

Posted by Ron Marshall, Birdhouse Builder Extraordinaire (Marshall Enterprises) over 8 years ago

Donne - Great post emphasizing such key points. I would like to point out to realtors that they too in the position of the small  businessman. If you intend to buy a home in the next couple of years now is the time to keep the writeo-offs to a minimum and maximize the income you report. The tax you are avoiding now may be reflected in the home you can't buy later.

Posted by Maya Swamy, Ph.D. Long Beach, CA - fundsavailable.com (Funds Available) over 8 years ago

Donne, It's funny how many Internet leads go POOF when you ask them the simple question about "Have you gotten preapproved?".  We're not asking for details, just a Yes/No, and it's about 50/50 on hearing back from them :)

Posted by Liz and Bill Spear, RE/MAX Elite Warren County OH (Cincinnati/Dayton) (RE/MAX Elite 513.520.5305 www.LizTour.com) over 8 years ago

Donne ~ We now expect a letter emailed to us from our clients lender stating they are pre approved and for how much just for our records!

Posted by Karen Baker, Professional Help with Rapid Responses... (Sunset Beach and Beyond Realty) over 8 years ago

George - Most of the Realtors I work with know better too; some still need some training.  Thoroughly reviewing and assessing a prospective buyers qualifications is absolutely vital in determining their eligibility for a loan.  Simply pulling credit isn't enough, which all that so many order takers unlicensed bank reps do.

Ron - Some days I do drink but I have always been able to wait until dinner time.  LOL

Maya - While you and I both know that in order for these people to get a loan, they are going to have to start paying more taxes.  Yet, whenever I tell one of them that, they get all pissy about how the government is screwing them.  SERIOUSLY??? 

Attention self-employed borrowers and small business owners:  if you want to buy a home, you have to pay more taxes and take less write-offs otherwise, save a bunch of money (which shouldn't be hard since you make so much and you're not paying taxes) and buy it cash.

BLiz - I would venture those odds are because half of them are just looky loos who want to see properties and aren't serious buyers.  JMHO

Frank & Karen - Good for you!  I'm so glad you two are not wasting your time, energy and resources showing properties to unqualified buyers.

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

 

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Donne - What a subject. I have had so many instances that the client has stated exactly as you say. "why can't I get approved"? DTI is something a lot of clients don't really factor. But they have no problem.

I have been a bit more firm on asking many more lender questions but telling them I am not a lender, but they should talk to one.

Posted by Ken Barker Realtor® GRI, E-Pro Certified (Dilbeck Real Estate) over 8 years ago

Its amazing how agents who don't understand today's realities have managed to survive so far.  Buyers must understand that having good credit, income, and assets should be a given, not something special. 

As long as agents continue to suggest hte 5 minute Pre-Qual over the phone, the realities of today will never sink in with the buyers.

Posted by Rodney Mason, AL, GA, SC, & TN (Guaranteed Rate) over 8 years ago

Hi Donne!  OH, you are SOOO right on this!  I can't seem to get why buyers agents don't do this routinely. It's a quick process that makes their Offer SO much more substantial.  It can even be lower than necessary but, pre-approvals speak volumes as to their intent and this day and time, intent is 3/4 of the transactions!!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) over 8 years ago

Hi Donne, Excellent post, you are right on...Thanks for sharing.

Posted by Ronald DiLalla, No. Orange Cty Real Estate (Century 21 Discovery DRE 01813824) over 8 years ago

Ken - It's true that dti ratio guidelines are more stringent now than ever before.  It doesn't matter if someone has a great job and makes good money, if they have really high dti's, they won't be getting a loan until the reduce their debt.

Rodney - That is exactly it!  They think these factors make them special.  Don't even get me started on those 5min, phone prequals from order takers unlicensed bank reps.  I just read a post about that exact thing today and a bunch of Realtors/agent were all agreeing with the blog author (a Realtor) that it only takes a few minutes to get prequaled.  AAARRRGGGHHH!!!

Debe - While I do think that many Realtors/agents are finally getting smart about not putting unqualified or unapproved buyers in their car, there are still so many that simply don't get this whole concept and they let prospects intimidate them with their grandiose qualifications.  It's just so sad that they have no control over their time, energy and business.

Ronald - I'm glad ou liked it.

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

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Gosh, how many times have I heard that phrase -- years ago?  You've inspired me on this one!  THANKS

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) over 8 years ago

Everything you said is right on. I won't even look for property for someone on the MLS until I know they're prequalified. When I first started I would always attempt to pre-qual someone, but if I 'felt' like they were good to go I would get started searching for property on the MLS. I'm done wasting hours finding great properties for someone that's not even serious.

After a few experiences where people never got the pre-qual to me or turned out to be not serious buyers, I quickly nipped this in the bud.

Now I won't do anything more than have a phone consultation with them until I get their pre-qual "in my own two hands".

I find I have much more time now :P. My tasks are focused on people that are ready, willing, and able.

Posted by Mike Bolaski (Coldwell Banker) over 8 years ago
You really took the time to explain this thoroughly. Great job!
Posted by Cheryl Ritchie, Southern Maryland 301-980-7566 (RE/MAX Leading Edge www.GoldenResults.com) over 8 years ago

Our business has definitely changed. .just a few years ago, this wasn't  even necessary. 

Approval before you get in my car. . .that is my buyers agent motto 

Posted by Fernando Herboso - Broker for Maxus Realty Group, 301-246-0001 Serving Maryland, DC and Northern VA (Maxus Realty Group - Broker 301-246-0001) over 8 years ago

My favorite is when I ask about the source of the down payment or closing funds.  So often borrowers seem to get put off by that question - many answering, "I'll come up with it."

Sorry, as Donne stated closing funds must be sourced as the borrower's own funds and seasoned for 60 to 90 days.  If the funds can't be paper trailed then there will be issues.  If there are other unsourced deposits in the bank statements being used to verify the closing funds (even ones under $100) there will be issues.

I don't ask these questions Mr. & Mrs. Borrower to be nosy.  Just "coming up with it" is not near good enough. 

Posted by Steve McCoole (Mortgage Alliance Group - San Diego, CA - NMLS#305667) over 8 years ago

Subscribing your blog!

Posted by Deepak Chauhan, Irvine, CA ... the place to be (Versailles Property) over 8 years ago

True what you say!   You can waste time with buyers who aren't approved and may not get approved. Get the whole story up front and then look around.

 

Patricia/Seacoast NH & ME

Posted by Patricia Aulson, Realtor - Portsmouth NH Homes-Hampton NH Homes (BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate ) over 8 years ago

Donne, I totally agree. I run into this with cash buyers who don't want to verify where the money is coming from up front. A pre-approval letter is a must in today's market.

Posted by Michael Setunsky, Your Commercial Real Estate Link to Northern VA over 8 years ago

Yes, people are often amazed when you let them know that if they don't have a preapproval letter they are NOT getting into your car.............my time is valuable, if they want to pay me by the hour, we can certainly discuss it!  :-)

Posted by Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional, Palm Harbor, Dunedin, Clearwater, Safety Harbor (Charles Rutenberg Realty) over 8 years ago

No tire kickers here.  Nice post.

Posted by Richard Pino (RE/Max Advantage Real Estate) over 8 years ago

Donne, it amazes me how some Realtors don't understand the complexities of the lending process as it is now and are still living in the "old days", but fortunately, most do get it.

As for the overinflated egos of the self employed borrowers, my response to them is you can lie to the tax man or you can lie to the banker, but you can't lie to both. Although by taking all the deductions entitled them is technically not a lie, they understand the gist of my comment.   

Posted by Ray Waisler, NMLS #6621 - Specializing in Jumbo FHA & VA (Finance of America) over 8 years ago

We recently had an agent that had spent six months with a client looking for a 500k home found it and they could not qualify. When I star talking with a client I always ask cash or do you need mortgage, allows me to read the client and is he ready to buy

Posted by Jack O'Neal (HomeSmart Elite Group) over 8 years ago

Agreed 1000%. I always, always preach this to potential buyers; especially the part about getting pre-approved BEFORE you start thinking of buying.

Posted by Greg Nino, Houston, Texas (RE/MAX Compass, formerly RE/MAX WHP) over 8 years ago

Great post, I feel a re-blog coming.  This one needs to get out there.  I've always suggested the pre-approval before looking for a property(not sure why you would do it any other way)but it's especially true now that things have tightened up so much.  Good blog, I would have "suggested" it if I had gotten here 35 comments ago!

Posted by Chad McDowell, FHA and VA Mortgage Loans Snohomish County, WA (First Time Home Buyers, Pre-approvals, Fixed Rates) over 8 years ago

I may be preaching to the choir here but I agree--it should be mandatory for any real estate agent to get his buyer pre-approved by a lender.  Don't forget--buyers are liars.

Posted by Bob Hirsch (The AVD Group) over 8 years ago

You make some great points..why agents are driving buyers around without loan approvals is beyond me...lack of training and bad management...

Posted by Cory Barbee, Broker (760) 563-4022 over 8 years ago

Carla - I know!  You would think that no one is saying things like this anymore.  But alas, I just heard it again last week from a Realtor.  SERIOUSLY!!!

Tyler - Yep, ready, willing and able should be the only people you put in your car.  Unless of course, you're into being a tour guide or chauffeur.

Cheryl - I'm glad you like it.  I like to be able to educate and inform people about the loan process.

Fernando - Good for you for being smart about who you work with.  Don't even get me started on how times have changed.  :)

Steve - It's so true that although cash buyers don't need to be "pre-approved", their funds to closed do need to be verified and sourced.  They simply can't just show up at escrow with a bunch of money.

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

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Deepak - Thank you! I appreciate that.  :)

Patricia - That's what the smart Realtors and agents do and we're all smart right?  :)

Michael - Absolutely!  While cash buyers don't need to get "pre-approved", they do need to provide proof of funds to close that can be verified and sourced.  It's amazing the cash buyers that think they can just show up at escrow with a bunch of money or a cashiers check.  SERIOUSLY???

Barbara Jo - Yep, that's right!  You are a smart businesswoman who earns a living.  If someone needs a tour guide or a chauffeur, then they can pay the hourly rate that those professionals make - right?  :)

Richard - Smart move!

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

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Ray - While I do believe that the smart Realtors/agents know better than to put an unqualified buyer (a buyer who has no pre-approval) in their car, it still amazes me that there are still so many who just don't understand that when they do that, they run the risk of wasting their time, energy and resources on people who couldn't get a loan to save their life.

As for the self-employed borrower, I do feel for them, really I do!  I understand that they have worked hard to build a successful business and that they also deserve to take advantage of the tax benefits that are available to self-employed people.  However, they need to learn that if they want to qualify for loan, they are simply going to have to bite the bullet for a year or two and pay more taxes.  It's as simple as that or at least until the stated loan program comes back.

Jack - Good grief, six months being a chauffeured tour guide!  I sure hope that agent learned a valuable lesson after that.

Greg - Yep, getting pre-approved as soon as you start thinking about buying a house is an absolute must.  It saves everyone so much time and energy and money.

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

 

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Chad - Please feel free to reblog if you like.  It's an important message that so many Realtors/agents really need to hear as much as possible.

Bob - I've heard that saying too but I truly think in this case, it's simply more a matter of ignorance than deception.  They just simply don't understand why they can't use their gross income for qualifying purpose and why they will be subjected to their adjusted gross income (AGI)

Cory - My exact sentiments!

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

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Donne, please understand that when I referred to the self employed borrowers with over inflated egos I was referring specifically to those individuals that have a greater sense of self and distinct sense of entitlement because of their ego. They believe that since they make so much money that the earth should open up and give them their every whim. 

Fortunately that type of individual is not the norm and the greater majority of self employed individuals are hard working down to earth visionaries that rely on their own resources and ask for nothing in return other that the deductions due them. And you are right, they should not be penalized for taking what is due them through the tax codes. If you think about it, everyone on this forum is self employed.   

I am waiting for the day the stated income loans come back, but it should be strictly for the self employed. Having said that, some states have actually outlawed stated loans of any kind and it will take state legislation to reverse it. Self employed borrowers in those states will have no choice but to pay higher taxes for a few years in order to qualify. Doesn't seem fair, does it?

Posted by Ray Waisler, NMLS #6621 - Specializing in Jumbo FHA & VA (Finance of America) over 8 years ago

Ray - I do agree that so many high earners do seem to act like they're the best thing to ever happen to us, which is why I refuse to work with million dollar buyers anymore.  Yes folks, I do NOT work with million dollar buyers.  Been there, done that and they are a total PITA to work with. 

They want everything for nothing, nickel and dime me to death, seem to think I should feel so priviledge to work for them that I will work for free and they are never happy with anything that anyone does for them.  Needless to say, I have never received a referral from any of them and I am literally counting the days to their close and I can remove them from my database and never have to speak to them again.

As for the hard-working self-employed person who is just looking to buy their first home, I will do whatever I can to help them qualify but unfortunately, there just isn't a whole lot I can do for them anymore.  I too would like to see the stated loan come back but like you said, ONLY FOR THE SELF-EMPLOYED BORROWER!!!

However, until that happens, the best advice I can give them is to tell them to bite the bullet for a year or two by paying more taxes and to work with their CPA about increasing their AGI to an acceptable level where they can qualify for the price range that they need to be in.

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

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Donne, all I can say is THANK YOU!!  You're so right ~ the process is so complicated and TIME consuming it's silly not to start the process first!  Without an approval OR proof of funds we're just setting our buyers up for potential heartbreak.  Congrats on the well deserved feature!
Pamela

Posted by Lee & Pamela St. Peter, Making Connections to Success in Real Estate (Berkshire Hathaway HomeServices YSU Realty: (919) 645-2522) over 8 years ago

Donne, you are sooooo right!  I'm always surprised when my buyers act surprised that I want that pre-qual letter in hand before we even look for property.  I just had a client that I took on referral from a good past client.  I didn't request the letter up front, and when we got offer time they were required to pre-qualify through a specific lender. She uncovered a short sale last year.  They had never mentioned it to me!  Jeeze!

Posted by Mike Cooper, GRI, Your Neighborhood Real Estate Sales Pro (Cornerstone Business Group Inc) over 8 years ago

Thanks for getting this out there Donne. I am surprised we have to keep telling buyers and agents this after the last few years. I recently ran into a contract for a $500,000 home on a borrower who had not pre-approved at all. Tax returns showed $16,000 in income.

Only thing I would add is that while I am really good at what I do, it's not my money and I don't have the final say. I would love to see agents ensure their buyers have an underwritten pre-approval versus an automated decision engine. In today's' lending environment, PA'ed loans fall out all the time when they finally get to underwriting.  This is never fun and both the buyer and agent thought they had a solid PA. As a mortgage professional, get that loan to underwriting and offer your buyers and agents the best PA we possibly can.

Posted by Brian Trainum (New American Mortgage) over 8 years ago

Hi Donne--Really great post--it seems like everything has already been said above!  I have mixed feelings about showing someone a house w/o a letter just because they could turn into a serious buyer down the road, but with gas prices creeping higher and higher that's harder and harder to justify to myself!!  (Of course, I'm also still new-ish and might not have quite the amount of business as others, which gives me time to do this.)

Posted by Susan Brown, REALTOR - Cary NC Homes for Sale (Fonville Morisey, a Long and Foster Company) over 8 years ago

Lee & Pamela - It's so true that buyers who don't get pre-approved first, end up seeing something they like and then they find out they don't qualify for that amount and everything they see after that is nowhere as nice looking as the first place they fell in love with.  Talk about heartache - OY VEY!!!

Mike - A SHORT SALE LAST YEAR!!!  SERIOUSLY!!!  I'm sorry but what kind of moron buyer thinks they are going to get a new loan with a year old short sale on their credit report.  I've been hearing people who had a short sale where they were never delinquent are getting new loans but I have yet to see a short sale where the sellers weren't delinquent.

David - It's so true!  For so long, I was actually amazed that more BA's were not contacting me when I issued a pre-approval letter and I often wouldn't hear from a Realtor/agent until an offer was accepted.  Personally, I think every BA should be calling their buyers lenders and finding out what was done to determine the buyers qualifications.  Many times, I will call the BA's myself to let them know what I've done to pre-approve our client.

Brian - While I run all my pre-approvals through DU, I believe that the strength of the pre-approval is also based on the MLO conducting the pre-approval.  I'm pretty thorough with my pre-approvals and as a result, my pull-thru rate is pretty good (94%).  The times I haven't been able to close is not because of my inability to catch some major deal breaker but rather because the borrower(s) financial status changed during the escrow process. 

For example, I have had borrowers as well as n/o/cb either die, lose a job or break-up during escrow; needless to say, that is a deal breaker.  I've had borrowers sabotage their escrow by running up their dti ratios and credit balances during escrow.  I have also seen buyers and sellers just flat out change their mind days before closing.  None of these cancellations were due to me missing something during the pre-approval process.

Anyway, $#^! happens sometimes and sometimes escrows fall-out but my pre-approvals are pretty strong because I know what to look for and I can catch all the red flags and credit issue during this process and I don't issue pre-approval letters to people who I think are not going to make it to the closing table.

Susan - I understand your predicament - really I do.  However, because you may not have the resources to waste, it is truly in your best interest to screen the people you actually put in your car.  The better you get at identifying actual qualified buyers who are serious about buying now, they more likely you are to actually closing some transactions.  JMHO

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

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

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.

Posted by Ed Silva, Central CT Real Estate Broker Serving all equally (RE/MAX Professionals, CT 203-206-0754 ) over 8 years ago

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.

Posted by Barbara Altieri, REALTOR-Fairfield County CT Homes/Condos For Sale (Kinard Realty Group - RealtyQuest Team, Fairfield and New Haven County CT Real Estate) over 8 years ago

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!

Posted by Celeste "SALLY" Cheeseman, (RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE (Liberty Homes) over 8 years ago

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.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 8 years ago

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

Posted by Dustin Oldfather, Delaware Ocean & Water Front Homes (Ocean Atlantic Sotheby's International Realty) over 8 years ago

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. 

Posted by Anonymous over 8 years ago

Donne:

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

Posted by Markita Woods NMLS#196099, Queen of Mortgages - FHA, VA, Conventional, USDA (Fairway Independent Mortgage) over 8 years ago

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.  :)

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

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.  :)

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

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

Posted by Reggie Green, Branch Manager, Top 1% Mortgage Originator (Team Green at Fairway Independent Mortgage Corporation) over 8 years ago

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.  :)

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

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

Posted by The Scott Loper Team Bux-Mont Premier Properties (Keller Williams Real Estate - Montgomeryville) over 8 years ago

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.  :)

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

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.

Posted by Jayne Clement, Los Angeles Short Sale Agents (Keller Williams Realty) over 8 years ago

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?

Posted by Gary L. Waters Broker Associate, Bucci Realty, Fifteen Years Experience in Brevard County (Bucci Realty, Inc.) over 8 years ago

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.  :)

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

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.

Posted by Marte Cliff, Your real estate writer (Marte Cliff Copywriting) over 8 years ago

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.

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

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.

Posted by Gene Riemenschneider, Turning Houses into Homes (Home Point Real Estate) over 8 years ago

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!  :)

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) about 8 years ago

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