Plan Ahead - Avoid Disappointment

There are times when a real estate agent or a
borrower is in the middle of a transaction that
starts to unravel.

When it involves financing, I frequently get a
call to see if I can come up with a solution to
the problem that they are encountering.

Today I heard from a real estate agent who
described the following situation:

Purchase price was $2.0 million. The buyer
was putting $1.4 million as their down payment,
and wanted a new loan of $600,000. The
escrow was scheduled to close tomorrow, and
they just discovered that the lender they were
working with was only going to approve the
new loan at $500,000.

From what the agent was able to relate to me,
it apparently was because the borrower's debt-
to-income ratio was higher than the allowable
guidelines. The debt-to-income ratio is the
percentage of the borrower's monthly income
that is obligated by the new mortgage payment,
property taxes, insurance, and all other monthly
debts for things like car loans, personal loans, and
extended credit card payments.

As silly as it sounds, the lender put very little weight
on the fact that the borrower was putting 70% of
the purchase price as down payment, and only
wanted a loan of 30% of the value. Also, the agent
mentioned that the new house payments were
less than what the borrower was currently paying
in rent.

From a risk assessment standpoint, the lender
was in a very good position. They were asked to
make a very safe loan in relation to the value of
the property, the borrower had a credit history
that showed they could handle even higher
monthly obligations that what was proposed,
and they even had cash reserves beyond the
$1.4 million in down payment.

Many times we find that the underwriters get
paralyzed by the guidelines. There is a tendency
for them to be so absorbed in the details that
they no longer look at the big picture. And
their decisions don't seem to make much sense.

The agent was disappointed that such a solid
transaction was being disrupted at the last
minute.

In our discussion, I offered a couple of ideas
that I thought would allow him to keep his
transaction together with the existing lender.
Even though it was in my best interest to
get the opportunity to work with this client,
it was in the client's best interest to try to
keep the transaction together with the
existing lender and close quickly if possible.

Of course, I also offered to review a copy of
the clients loan package to see if I could place
the loan with one of my sources who could
meet the loan request of $600,000. I will
see if I can help them when I get the oppor-
tunity to look over their financial condition.

There is a lesson here for all prospective
purchasers.

Please get your paperwork into your lender
even before you go into contract on a property.
No matter how solid your loan request may
seem, (and I can't think of one more solid
than this one that the agent was asking me
about), things have changed in the lending
world.

Don't assume that everything will go well, and
give yourself the advantage of having your
loan pre-qualified or pre-approved before
negotiating on the home.

It is such an emotional upheaval to miss the
closing date after having your moving plans
all in place, and after the anticipation of getting
into your new home.

Plan ahead so that your transaction is not
delayed at the last minute.