An interesting aspect of this business is that situations arise that afford me the opportunity to comment on what should not be done when applying for a loan. These same situations can, for borrowers and home buyers alike, illustrate an object lesson as to the questions borrowers should ask, as well as, information borrowers should supply when applying for a home loan.
A few weeks ago a real estate agent friend called and asked if I were aware of a particular mortgage lender. At the time, I was not. One loan representative in this company had called my friend and said that he had a client who was pre-approved for a loan. The mortgage representative's client had noticed my friend's sign on a listed home. The loan representative asked my friend to represent his client for the purchase transaction. Remember, my friend had the listing and was now asked to represent the buyer in the same transaction. She was concerned as to the validity of loan qualification regarding the potential buyer knowing she also has a "fiduciary responsibility" to the seller.
An offer was presented to the seller by my friend on behalf of her new buyer and this offer was accepted by the seller. With the offer in hand and an escrow opened the seller made plans to go on with his life and make the necessary arrangements to enter negotiations for his own change of residence. My friend, following up as she should, continually asked the mortgage representative as to the status of the loan for his "pre-approved" loan client.
Each day she was told that tomorrow she will have an answer. Well, many tomorrows came and went and still no answer. My friend then asked for a pre-approval letter so that she could tell her seller that this individual was truly qualified to buy his home. A certificate was faxed and the proper debt to income ratios were on the qualification form. Frustration building on my friend's part, she called me and asked if I could help her in this situation. She (the agent) asked her client to bring to the office information supplied to the lender for loan evaluation.
The client delivered her credit report and explanation letters to the agent's office. I reviewed this information and found that the credit situation was one that would make it very difficult for the borrower to qualify for a loan with the amount of downpayment available. The borrower had applied for an FHA loan utilizing a 3% downpayment. I personally spoke with the client and her comment to me was that if she had known, she would have waited to buy a home and not put the seller and agent (my friend) in this position. The mortgage representative now relates to my friend that he has sent the file to four different lenders.
What this company is doing is shotgunning this file with the hope that someone will pick it up. So far three lenders have turned down the file. We now have a seller, buyer and real estate agent who are emotionally drained. Also, the buyer has potentially at risk $1,000 of her funds deposited into escrow. This could have been avoided if the loan representative were either up front, or maybe more to the point, competent enough to first determine that the buyer was definitely qualified to buy.
Another situation occurred just before I began to write this column. An individual wants to refinance his property and pay off his credit card debts. I have a list of his credit obligations; I determined a ballpark estimate of his home's value; and we ran a credit report. Surprise, surprise, his credit report lists debts approximately $40,000 more than he reported to me. The report also listed a bankruptcy filed April 1995. The bankruptcy was filed by his ex-wife; however his name was on a loan that was part of the bankruptcy. These facts were not mentioned when we spoke on the phone. Information such as this is important to determine the starting point from which we can judge the suitability of a client for a loan program and/or a loan program for a client.
I report these two stories, so that if you are planning to obtain a loan either for purchase or refinance, tell your "whole" story to the loan representative. If you feel that your situation is questionable (you are a good judge), get from the loan representative a written commitment as to the loan program for which you do qualify. Also know that with marginal credit you can still qualify for a loan, albeit with a larger downpayment and/or higher interest rates. So, on both sides of the table, the best advice is "to tell."
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