All right, so this one is a topic about if you’re a listing agent, the four additional questions that I would be asking the lender when you’re trying to figure out which offer to go with, because there’s going to be multiple offers.
I’m sure all of you guys are already calling that loan officer. But with covid last year, there are just Kotoko.
But there are just a few things I would add in addition to probably questions you’re already asking. So the first one is, does your buyer’s financing include a second mortgage loan with it now, usually on your prequalification letter or preapproval lender from the letter, it’ll say loan to value. And then below it, there’s usually something that’s called CLTV, which stands for a cumulative loan to value.
And if that if there’s a number in there that’s greater than just the original loan to value. No, that is your sign that there is a second lien. It doesn’t hurt just to ask the question, because you guys don’t deal with loan terms that often. But it’s important to ask if there is a second lien involved, because as we saw last summer, when you bring in another entity to the transaction, it’s just it’s another variable that could cause a delay. It’s another variable that could mean something goes wrong.
And so it’s helpful to know if you’re trying to eliminate all those variables for your seller and the domino effect that we know that it can create, then you need to know if that financing includes another lender. So last summer, a lot of the second lien holders, there were delays. One of the biggest ones, their office got hit with covid, and they basically stopped production for a couple of weeks. And so make sure you ask that question to the loan officer is, is there a second lender involved in this buyer’s transaction?
The second question is, especially if you’re listing a home that’s in that first time home buyers bracket and you’re getting a bunch of offers, you want to ask the lender if there’s a down payment assistance involved in that transaction and nothing wrong with down payment assistance? I love it. I actually think it’s a great tool for buyers to get out of renting and into buying. But like we just mentioned, you’re bringing in another variable and that could cause delays.
And so if you’re trying to eliminate all possible delays, picking an offer with down payment assistance is probably not the best option, because essentially what downpayment assistance does is the lender has to qualify the client clear to close final approval. And then basically that down payment assistance entity has to also approve it. So if you’ve worked with USDA loans or anything like that, it’s kind of the same process.
And given the amount of first time homebuyers that are entering the market, yesterday, they talked a lot about generations that this generation is the largest generation that we’ve had, larger than the baby boomers. And so it’s really important that you ask that question because, again, it’s just another variable. And if you’ve got a buyer that doesn’t have it, then that’s just one less thing that you have to worry about. So third question that I would ask in go deeper in is the appraisal process for that lender.
There are usually two different types of appraisal processes within an organization, and that means that they have either what’s called an AMC or the lender has a appraisal panel that they can choose from. And an AMC or an appraisal management company is basically the lender hiring a company, a third party, to basically round-robin the selection of appraisers to go out and appraise that home.
And it’s a way whenever all the Dodd-Frank stuff happened, it was a way for the lender to basically ensure that they’re following the rules. They’re not handpicking the appraiser and they’re using a round robin approach. But this third party entity is who controls it. And the
downside with that, a lot of the big banks have these AMCs and even smaller banks do, but the downside of it is, let’s say your average appraisal is four hundred and fifty dollars. Well, if a lender company uses this third party entity, they have to get paid. And so they typically will take a percentage of that four hundred and fifty dollars fee.
And so the appraisers that are part of this entity that get hired by this entity, they’re doing the same work as any other appraiser, but they’re getting paid less because the AMC is taking a piece of it. Versus lenders who have their own in-house appraisal panel, they would get paid the full fee and lenders usually will vet out this appraisal pool more than what this big massive AMC company might do.
If you order from this AMC company, you might get an appraiser who is out in Garland coming out on appraising your home in Frisco, Texas. They might not know the area that well versus the appraisal panel. The lender is going to make sure that if you are at home and you’re in Starwood, that an appraiser who knows that area is going to go out and appraise that home.
Now, it’s still legal because there are over, let’s say, 10, 15, 20 appraisals in this pool. And so when the loan officer sends a request, it’s still a round robin. But we can vet out these appraisers a lot more and have essentially more control than an AMC company. And so at the end of the day, if you have an appraiser that has to do a job that cost four hundred fifty dollars and they’re getting paid their full fee versus a portion of it, then how what do you think the quality is of their work?
And second question is, is if they make a mistake on that report, which happens all the time, sometimes it’s just clerical, sometimes they they don’t put the correct bedrooms or bathrooms or whatever. That report has to be fixed before the lender can close on that loan. We can’t close with an invalid report. And so how how hard do you think it is to get these people to fix that mistake or if we have a value rebuttal, how well do you think that they are going to be to consider that value rebuttal when they don’t even get paid their full fee?
Probably not likely. So you want to be asking the question one, hey, loan officer, what is your appraisal process look like? And I would say, do you guys use an AMC? Do you guys have your own panel? The scary thing is a lot of them probably don’t know the answer to that, but try to get the answer to it. And then the second question I would add to that is, on average, how long is it taking the appraiser to complete the process? Because there’s nothing worse than a loan officer telling you, yep, this client’s great. They’re really the fully pre-approved no concerns.
Your seller accepts the offer now they’re under contract. And then it’s like a surprise. This appraiser is taking two and a half to three weeks to get. But you wrote a 17 day close. It’s not anything to do with the financing, but it’s that appraisal process and their turn times, especially when we hit these busy months and we’re still in a reify boom. And a lot of refinances require appraisers to go out and look at their home.
So they’re they’re busy. So make sure you ask those questions about the appraisal process, because, again, we’re trying to eliminate as many variables as we can to keeping the loan closing on time. All right. So the fourth one. Oh, this is important. The fourth one is I know you guys already ask about income. Are they prequalified or pre- approved? Most of the time, real estate agents are really good about asking that question.
But you have to go deeper because unfortunately, with covid in 2020, there were a lot of people impacted. Business owners were impacted from revenue standpoint, a lot of employees, they didn’t get paid their regular bonuses or commissions and things like that. And as a loan officer, if you make variable income things like commissions and bonuses, we have to have an average of that type of income because it fluctuates. It’s not like a standard salary where we know it’s guaranteed.
And so typically it’s a 12 to 24 month average, depending on the loan program that we have to use to calculate that income. Well, I had a client he works at top golf, and a large part of his pay was based on events that were booked well in 2020. There’s not a lot of top golf events that were being booked. So his his commission income on his paystub didn’t look so hot compared to the prior year. And so if I was a loan officer and I’m qualifying them and I didn’t do my due diligence by saying, OK, I’m only going to qualify you on this income that you had in 2020.
That’s not an accurate picture of their income, that loan officer didn’t dig deep enough to know. Let’s look at your prior year and then let’s put a story together that says 20, 20 was just a crazy year. Let’s look at the prior year and then we can write a letter of explanation that says why this income was was down.
But as a listing agent, what you need to be asking that loan officer is have don’t say has the client been pre-approved or prequalified. It’s too easy for a loan officer to say yes to that. You have to you really have to nail down the specific question that you’re asking. Did your client submit the income documents to get qualified? Let them answer yes or no.
Ok, great. Did you calculate the income calculation for them to qualify, yes or no? I know that sounds crazy, but a lot of loan officers just collect the documentation and they don’t actually calculate it to make sure that they qualify. So you actually want to take it a step further to ask that question.
Did you run the income calculation? And then, yes, I would ask a third question that says, does this income calculation have any is there any concern with the covid from the prior year bonus income over time income? Is there anything that concerns you about their current income where covid may have impacted it and we could have issues with loan approval?
And the reason why it’s so important to get that laser specific in your questions, especially this year, is because the market’s moving fast and furious and loan officers are moving fast and furious. They’re human. They’re going to make mistakes. But by you asking that detailed question, it’s going to cause them to potentially slow down. It’s going to cause them to OK, this agent knows what they’re talking about. I’m going to go into this loan file and make sure that I’m actually giving them the right answer. And I’m not just saying yes, yes, yes, yes, yes. Because my buyers annoyed.
They’ve made 10 offers on homes and they’ve missed out. So, gosh, let’s just get this buyer under contract, but it forces them to potentially stop and slow down and make sure that they’re giving you the correct answers. Because if this client goes under contract and then two weeks later, that loan officer has to call you and say, oh, they don’t qualify. Their bonus income was a lot less in twenty twenty than it was in twenty nineteen. And so the underwriter thinks it’s unstable.
You’re going to be like, whoa, hold on, we talked about this. And so those are the four additional questions that I would ask the loan officer. And I would also go ahead and prepare yourself for that. It’s a crazy market. Income is difficult to qualify right now because of how many people were impacted from the year before due to covid. And all that does is setting the expectation with the seller that there could be fallout.
I know nobody wants fallout, but our job is to set proper expectations with our clients. So ultimately they don’t get frustrated with us. There’s going to be fallout this year. I am predicting there’s going to be more fallout actually than ever. And 2021 because of how fast and furious this market is. And so backup offers are going to be important, but preparing your clients expectations for that is going to be even more important.
And so an analogy I like to use with my clients. You guys are welcome to use as well as sometimes when you get into a mortgage loan or when you’re in when you’re in a middle of the real estate transaction, it’s kind of like a baseball game. There’s nine innings and there’s a curveball that can come at any time. It could come in the first inning or it could come at the bottom of the ninth.
And so my job is to make sure that we are ready for those curve balls. We put together a plan of action to prepare ourselves to get out of that situation. But neither you nor I can prevent a curve ball that doesn’t have anything to do with our lane. It could be that the appraisal came in lower. It could be that we just had a guy send us tax returns and he had a fifteen hundred dollars a month bill to the IRS every month that he failed to disclose.
And so at the end of the day is our job to make sure that we get the win, we get through all nine innings. Hopefully I stress free as possible, but don’t paint the picture. It’s going to be rosy because it might not be and you don’t want them to get frustrated with you. So I hope that’s helpful. Let’s move on the topic number four.