Sun Tzu said, "Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win”. What does Sun Tzu philosophy have to do with the mortgage market? If you prepare your client for the application process early, you can avoid the painstaking "just one more document" dance later.
Most clients are shy about sharing their financial statements and bank balances. Presentation, however, is the key to acceptability. For their convenience, you need to understand and verify their incomes, income sources, cash positions and sources of cash for the down payment.
Take these data and compare them to the loan requirements. Be realistic and conservative. Back in the 1980s, people were frantic to buy signature homes they could not really afford. Money was loose, but interest rates were high. Some real estate agents suggested their clients practice their future budget by saving the difference between their current housing payment and the expected new payment during the house search period. Higher down payments would be available, and the financial comfort zone would be established.
Most clients could not complete this savings test which implied they were buying too much home. And why would you care? They will be "one and done" clients. You build your business on repeat customers.
Now, the money is tight, but interest rates are affordable. Your clients need to rehearse looking financially stable. No wild swings in available cash, no credit score roller coaster, no waiting for that gift from the folks.
Verify cash in the bank to pay the down payment, or better yet, have them deposit it into escrow where availability goes unchallenged. How long has the cash been in their savings or checking account? At least six months demonstrates planning and stability.
Verify income by copying check stubs, getting employer documentation or copying tax returns. Conservatively, the mortgage amount should not exceed three times the verifiable income.
Obtain credit reports from two of the agencies. The results of a recent on-line lender poll revealed credit scores of 620 or above can currently be approved for reasonable long-term rates. This underwriting test changes frequently and is different for each type of loan. Check this criterion often with your lenders. All accounts should be current or made current prior to underwriting the loan.
Now, show them the selection of homes that fit their budget and down payment capacities.
Why so strict? You're preparing them for the mortgage gauntlet. They need to toughen up and demonstrate stability. It's the only way to get approved.
Of course, if your selling their current home to get the cash for their new purchase, verify all these financial data from that buyer as well. Or, at the least, make sure the selling agent knows the deal will be completed.
Si vis pacem, para bellum. If you want peace, prepare for war. This Roman Empire adage is true today for mortgages. If you prepare for tough negotiations, the deal will go smoother.