By Bridget McCrea
Credit is tight and lending standards are high, but mortgage financing is still going to homebuyers who successfully navigate the borrowing game.
Janice Weathington has seen firsthand how tighter lending standards are affecting the homebuyers that she works with, many of whom are going through the process for the first time.
“All of the back and forth is definitely challenging for my clients,” says Weathington, a broker-associate with Century 21 Pro-Team in Homewood. She takes an educational stance when working with her high volume of first-time homebuyers. That means telling them from the beginning the mortgage application process will be rigorous and that they should be ready to produce reams of documentation – sometimes repeatedly. “There are definitely more hoops to jump through and more stringent lending requirements to contend with,” says Weathington. “You really never know what to expect.”
Weathington says buyers can quickly become frustrated with the extensive documentation requests from lenders. Equally as diligent, the loan underwriters add to the frustration by requesting updated bank statements, paycheck stubs and other documentation before issuing final approvals.
In some cases even the most cooperative homebuyer can’t successfully navigate the new mortgage lending dynamic. Recently, for example, Weathington worked with a couple that had already moved out of a rented apartment and into a hotel in anticipation of a specific closing date. A red flag went up when the lender started asking for more documentation just a couple of weeks ahead of that date. After making repeated calls to the lender, Weathington learned that internal, organizational changes at the company were to blame.
“By the time we found out what the issue was it was too late to change lenders,” says Weathington, who cautions other agents to only work with reputable lenders who have proven track records and to also stay in constant communication with them throughout the entire sales process. “On that deal, closing wound up being delayed for 30 days and my buyers were forced to spend more on temporary housing while they waited to move into their new home.”
REALTORS® across the country are grappling with the new realities of the financial markets. To successfully shepherd clients through a process that’s never been easy by any standard, brokers are making sure buyers know what to expect before they even start looking for properties. At Baird & Warner Real Estate in La Grange, Dean Rouso, broker and principal, says all buyers are advised to get lender pre-approval before previewing any homes.
“The pre-approval tells us the story up-front,” Rouso said. “We can clearly see what the buyer’s credit will allow them to do, what their loan limits are, and whether they’ll need a conventional or FHA mortgage. Without this information in black and white we don’t even know where to start looking for homes.”
To help buyers through the lending process, Rouso says his team focuses on five simple “Ps”: Proper preparation prevents poor performance. “We really try to help the buyer understand the realities of the market,” says Rouso. As part of that planning process, he says finding reputable lenders who will always “give the straight scoop on application progress, hang-ups, and challenges,” is critical.
REALTORS® must also pay attention to the home appraisal process, and keep an especially sharp eye on appraisal prices versus purchase prices of the homes in question. Know the most recent comparables and help sellers and/or buyers come up with accurate price points based on what other homes in the area have sold for recently, advises Evan B. Klee, area sales manager for Fifth Third Bank in Highland Park.
And don’t forget to talk to clients upfront about important issues such as down payments and where those funds are coming from. “The last thing you want to deal with is a buyer who has to scramble to document a large deposit (such as a last-minute down payment gift),” says Klee. “Have that piece in order well in advance.”
Taking the educational stance a step further, Rouso stresses the importance of regular, candid communication with buyers, many of whom don’t realize how seemingly routine financial moves (such as buying a new car or purchasing furniture for their new homes in advance of closing) can negatively impact their chances of getting the mortgage they want. “Lenders are pulling ‘second’ credit reports right before closing,” says Rouso. “The buyer whose credit looked fine a couple of months earlier can suddenly find herself in a problem situation just before settlement.”
Stephen DiMarco, president at Key Mortgage Services, Inc., in Chicago, says while the actual lending guidelines haven’t changed much over the last 3-4 years, the non-traditional buyer (a self-employed individual with a high number of tax write-offs, for example) continues to face challenges when applying for a home mortgage. “In the universe of people who have W-2s and who pay taxes, most will pass muster in this environment, where lenders want to know that someone has capacity, character, and collateral to support a loan,” DiMarco says.
DiMarco, who compares the mortgage approval process to a “visit to the dentist,” says REALTORS® can help buyers by letting them know in advance just how intrusive the procedure is going to be. “Let them know they have to cough it all up, and then some,” says DiMarco. “Lenders are requiring over-documentation – for good reason, since this mortgage business is supported by the U.S. taxpayer – and they want all of the I’s dotted and the T’s crossed.”
“Set the stage upfront with your clients. Discuss what documentation is needed and how the mortgage lending process works from A to Z. Position yourself with a lender that will create a thorough pre-approval letter early on so you’re not out there wasting your time with a client who isn’t ready to purchase right now. Then, initiate and use open lines of communication with the lender and make sure the entity is extremely transparent and upfront about what’s going on with the loan at any given point.”
- Billy Burns, Vice President of Mortgage Lending, Guaranteed Rate, Naperville.
“The world has changed; what we required five years ago is much different than what we need today. To facilitate the process, agents should form ‘collaborative’ relationships with mortgage professionals. Get us out in front of clients as early as possible so they can get pre-approved. We need time to work with the clients and provide direction on how to address any and all challenges that might come up. When we work together in a collaborative manner with agents we’re able to provide the guidance and support needed to reach a successful end result.”
- Dave Braakman, PNC Mortgage’s Chicago South Regional Manager
By the Numbers...
An April survey by the Federal Reserve revealed just how hard it is to obtain a mortgage right now. According to the Fed’s survey of banks’ senior loan officers, 43 of 52 banks said they were “less likely” to make a home loan to borrowers with a FICO score of 620 and a down payment of 10 percent now, compared to 2006.
Raise that down payment amount to 20 percent and 37 banks said they were still less likely to make the loan. Good credit doesn’t necessarily work in the borrower’s favor, however. At a FICO score of 680 and a down payment of 10 percent, for example, 36 banks would still be less likely to shell out the money. Up that down payment to 20 percent with the 680 credit score and 15 of the respondents were less likely to make the loan and four were more likely to make it.
About the Author: Bridget McCrea is a business, real estate and technology writer in Clearwater, Fla. She can be reached at email@example.com.