Lending a Helping Hand

How to get homebuyers through the mortgage process and prep them for the new lending dynamics and hurdles.

Cathy Burns knows that the homebuyers she’s working with are dealing with a lending landscape that’s changed significantly over the last few years. Not only are some buyers grappling with their own credit and financial challenges due to job losses, foreclosures, and bankruptcies, but lenders have also tightened their standards when it comes to doling out mortgages.

North Carolina REALTORS® like Burns, broker-owner of Cathy Burns Real Estate in Charlotte, have found themselves providing more education, support, and assistance during the financing phase of the home purchase.

“We’re not mortgage experts, but we are definitely working more closely with buyers who need extra support and help when obtaining financing,” says Burns, who has run into the biggest challenges when working with buyers who recently completed short sales on their previous homes. She also has a steady flow of buyers who are on standby — waiting for their credit and/or financial pictures to improve before they can get qualified for mortgages.

“I have a pair of buyers who have been in my database since 2011, waiting for their situation to improve,” says Burns. “Two years later, they just signed a purchase contract on a home.”

The Financial Realities

Burns isn’t alone. REALTORS® nationwide have come to grips with the fact that mortgages have become increasingly elusive over the last couple of years. Credit requirements are more stringent, appraisals are coming in below negotiated values, and the payments and fees related to lending (private mortgage insurance, for example) are higher than ever. Sure mortgage interest rates are low, but what good does that do when the qualifying process has become more difficult for the typical homebuyer?

To successfully shepherd clients through a process that’s never been “easy” by any standards, agents and brokers are making sure buyers know what to expect before they even start looking for properties. A good starting point is to advise buyers to get a lender preapproval before previewing any homes. “The pre-approval gives us a good idea of where the buyer stands,” says Burns, who also spends more time “listening” to buyers and keeping an ear out for any financial issues that may come up later in the process.

“If you pay close attention to what your buyers are telling you, it’s not difficult to pick up on problem areas — like poor credit scores, bankruptcies, foreclosures, etc. — that could prevent buyers from getting the mortgage funding that they need,” says Burns.

All the Right Moves

Richard Booth, a 16-year mortgage banker in Neptune, N.J., says the once “fairly simple” process of getting a borrower approved for a mortgage has changed dramatically over the last three years. “With all of the changes that have transpired with Fannie Mae, Freddie Mac, and the FHA, the market has become extremely competitive for buyers in search of financing,” says Booth. “Those buyers really need to have their ducks in a row before they even begin the borrowing process.”

NC REALTORS® looking to guide buyers through a smooth financing process should start talking about mortgages before they start searching the MLS for homes to view with those buyers. “Have them sit down with a mortgage banker and run their credit before they even look at their first house,” advises Booth. This will give buyers time to clean up any improprieties or errors on their reports in advance and it will give you insights into their “finance-ability,” so to speak.

“Agents should do as much due diligence upfront as possible to weed out credit issues, down payment challenges, or other problems, and to make sure the buyer is qualified before they start showing homes,” says Booth. “It doesn’t do REALTORS® any good to waste their valuable time showing homes if the borrower ultimately can’t get financing.”

Issues like gift money that’s being used for down payments — an area that REALTORS® didn’t typically address in the booming real estate market — should also be discussed in advance with the buyer. That’s because the gift money will likely need to be “seasoned” for at least three months prior to closing (according to the individual lender’s standards). Other issues to address with buyers include gathering the down payment money (a key obstacle for many buyers) and requirements for self-employed individuals (most lenders require the borrower to provide tax returns for the past two years). “These are just a few of the different funding facets,” says Booth, “that need to be buttoned up well before the home search even starts.” v

Financing Success Tips

Mortgage professional Richard Booth offers these tips to REALTORS® who are looking to lend a helping hand to buyers in need of financial help: m Find an independent, NMLS-licensed loan officer. Bank loan officers are not required to be licensed and are exempt from the testing and education requirements that their independent counterparts are required to have and maintain annually. Independents also have more loan options because they work with several lenders. m Have your clients meet with a loan officer long before they start the house hunt to discuss and resolve credit, down payment, and related issues. m Start gathering necessary paperwork early (such as two years’ worth of 1040s, a 30-day cycle of pay stubs, and so forth) to help your buyer get pre-approved for a loan. m Discuss housing counseling and applicable government assistance programs with your buyer. m If your buyer is self-employed, explain the additional paperwork that he or she will have to present in order to get a loan. m Explain the Good Faith Estimate and Truth in Lending documents, lock-process, and dangers of quoting rates in a rapidly changing market (where the numbers can change from day to day, thus impacting the amount of money that a homebuyer can borrow). m Explain that issues arise during the financing aspect of the sales process, but that you will be there to resolve them from application to closing. m Always under-promise and over-deliver.

By VIC KNIGHT CERTIFIED GENERAL APPRAISER VICE-CHAIR NC REAL ESTATE COMMISSION