Wednesday, July 08, 2009

Mandatory buyer loan approval with SELLER'S lender?

If you’re in the market for a new home, you’ve probably already been pre-qualified or pre-approved for a home loan with a lender of your choice. However, many sellers and listing agents are requiring buyers to pre-approve with the listing agent’s lender of choice as a condition of even reviewing a purchase offer.

The pros of this approach: The seller and listing agent receive more seemingly "trustworthy" information since it is coming from a lender that they have presumably worked with before. However, the cons include the following:

-In the current economic climate with layoffs still occurring, there are no guarantees that a loan will fund until it actual does so, regardless of buyer qualifications.

-Getting a purchase loan is a contingency which must be met in a certain number of days after offer acceptance anyway;

-This is a time-consuming burden to sincere, already-approved potential buyers, and in multiple offer situations, not all offers will be considered anyway;

-A potential buyer may have to share confidential financial data with several institutions over the course of their search. Privacy, anyone?

Solution: 1. If a listing agent wants to know if a particular buyer is qualified, the listing agent needs to do the legwork by calling the buyer’s lender and asking for particulars. The listing agent can then advise their seller client accordingly. That’s what we’re paid for. 2. The listing agent & seller can ask the buyer to "double apply" during the loan contingency period if extra certainty is needed.

Here are two emails between me and a listing agent about just such a situation. Names and details changed, of course. Background: my buyers were pre-approved for a loan, have plenty of provable cash, good credit scores, stable employment, were putting down 25%, and made an offer that was $34,000 over the list price. Offers had to be in 72 hours after the property listed.

My email: "[Listing agent], as you know, my clients have a very strong offer in on the [address] property. I'd like to ask you to reconsider the requirement that my clients get pre-qualified through [lender name] at [lending institution].

[Mr. Buyer and Mrs. Buyer] are continuing to go through all sorts of gyrations in an attempt to meet [seller's specific lender] requirements although they've had an extremely short time period to do so. This includes attempting to get their 2008 taxes filed today. They had been holding off to take advantage of the $8000 first time buyer tax credit that can be applied to 2008 taxes. Now, in 2009, they make too much money now to qualifiy for the credit. So, [listing agent], the way I see it, they are losing $8k in just attempting to get this house.

Also, I am attempting to line up another [seller’s lending institution] to get the letter you need.
The issue appears to be [buyer's 2006 and 2007 income]… Obviously, this is 2-year-old and three-year-old information anyway. The [Mr. & Mrs. Buyer] were barely out of college at the time. Subsequently, [Mr. Buyer’s business has taken off and [Mrs. Buyer] is an accountant at [large company]…

Most importantly, they have already been conditionally approved by [buyer’s lender] at [large lending institution]… one of the biggest home loan lenders in the area. You can call [buyer’s lender] at [phone no.] for any information that you need, and/or I can get a letter from him. You'll recall that you and I had a very successful transaction in February with [same lender] as the buyers' (Mr. & Mrs. [former buyers]) lender -- it was FHA and it closed on time. Thanks for considering this."

Response from listing agent (a nice guy, btw):

"sorry but [seller bank] requires a pre-qualification letter from a [seller bank] loan officer. If things aren’t going well with [seller’s specific lender] you are free to get one from another [seller bank] loan officer. Please try to remember that [seller’s specific lender] is doing what she is supposed to... [seller’s specific lender] is just trying to be thorough and avoid problems down the road."

Outcome: two days into the process, the seller’s lender told us that there was a better offer and we would not get the property anyway. Gosh, wouldn't it have been nice to know that before all this time was wasted? As my buyer said, "There is more drama going on here than in General Hospital."

1 comment:

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