BLOG VIEW: Homebuyers have been dealing with a difficult market for some time. Until recently, the mortgage industry has been satisfied to leave the work of empowering new buyers to their real estate agents, so that loan officers (LOs) could spend time focusing on the flood of refinance business that led to a $4 trillion mortgage market in 2021.
However, 2022’s market will only be a fraction of that, according to the latest estimates. With interest rates on the rise, the easy refinance business is now gone, and lenders are working on purchase leads to shore up the lost volume.
With competition so fierce, the question becomes: who will win this business? In short – the LOs who can help agents sell more homes will come out on top. In a market where a seller can choose between 20 different offers and inventory levels stand at weeks instead of months, this can be a tough job.
What follows are three ways LOs can get it done, helping their referral partners close more business and getting more business themselves in the process.
Don’t Pre-Qualify, Pre-Approve
The days of handing a loan applicant or a real estate agent a letter that suggests a lender will likely approve a loan are over. Today, both buyers and their agents want to know the borrower can not only qualify for the loan but get the financing before they accept the offer.
For the typical pre-qualification letter, someone has ordered the applicant’s credit report, checked to ensure they meet the guidelines for the loan program under consideration, verified assets and noted any contingencies.
A pre-approval, on the other hand, has been given to an actual underwriter who has reviewed the file on the borrower’s side, with the property still to be determined, and approved the deal. This tells the borrower that if the property checks out, the deal will proceed.
It also allows the agent to reduce the typical 21-day waiting period on the third-party financing addendum to zero days. Suddenly, this prospective buyer has moved to the front of the line.
Skip The Appraisal If Needed, But Not The Inspection
In the current market, speed is key. One area that can significantly streamline the process is the appraisal. This is the most time-consuming part for many lenders, and bidders who can close faster by removing the appraisal contingency will likely look better to sellers.
However, this does carry some risk, far less so if Fannie Mae or Freddie Mac have issued an appraisal waiver, but that can rarely be determined at the contract stage. While the buyer can waive the contingency to close faster, the lender will not. This means that if the house comes in at a lower value, the buyer may have to make up the difference to maintain the proper loan-to-value ratio.
Still, for established neighborhoods where values are comparable or higher than the subject property, and/or when the buyer has access to additional funds if needed, this tactic can win the deal.
It is far riskier to waive the inspection, especially for the real estate agent who could be legally liable for undisclosed problems. Adding this to the list of all the other issues that could arise, buyers should not be advised to waive an inspection.
Get In The Habit Of Being Creative
When the market gets tough and loans are harder to find, good LOs get creative. They look for ways to make the deals work, collaborating with agents and prospective buyers to come up with a solution to finance the deal and benefit all parties.
Many times, the answer will be the loan programs themselves. While knowledgeable, LOs are not underwriters, so few if any will have every guideline to every loan program memorized. But knowing a lot about even a few programs can make all the difference.
For example, a USDA loan can help a borrower who may not have a lot of available cash for a down payment. However, if the borrower just misses qualifying, an FHA loan could help, as long as they have enough cash to pay a 3.5% down payment (and have not spent it all on paying down revolving debt to boost their credit scores).
However sometimes it is all about helping the borrower increase their credit score in a short timeframe. It can be done, but at the expense of cash that might be required to make up a shortfall due to a low appraisal.
Often it is just about helping an agent negotiate with the seller to make a good deal happen. This is especially true in the current market where we have seen borrowers come to the table ready to borrow against a 401K, only to find out at the 11th hour that the value in that account is no longer sufficient.
Saving these deals takes creativity, which comes from experience but also from working with a good team that has faced these challenges and obstacles in the past and learned how best to overcome them.
This is definitely the kind of market that requires creative and tenacious mortgage professionals, those who will do whatever they can to help their trusted agents and partners close more deals.
Regardless of the lending solution that may ultimately be the right fit, it is good to counsel every borrower to hold onto their cash before they sit down to consider home financing. It may make sense to spend that money to reduce debt or to improve the credit score, but it could also make more sense to use it as a safety net for a waived appraisal or to buy down an interest rate. Often, the borrower will not know what will be best until they sit across the table or the screen from their mortgage LO. When they do, it is critical they are working with someone who can give them the tools and knowledge they need to standout and succeed.
Nicole Solari is the branch manager in Houston, Texas, for Homespire Mortgage.