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Hi, I'm Ella Gurfinkel, your host of the AskElla Show and senior loan officer at Fairway Independent Mortgage. On my podcast, I cut through the noise to bring you honest conversations about real estate, mortgages, and financial planning.
I interview industry experts to tackle everything from homebuying basics to complex topics like reverse mortgages, trusts, and market trends. With decades of experience, I'm passionate about dispelling myths and providing clear, actionable advice.
Whether you're buying your first home, refinancing, or planning for retirement, I'm here to help you make informed decisions. Join me for straightforward talk about real estate and beyond!
that perfect offer your sellers just received not so fast it might be a financing disaster waiting to happen hey I am Ella Gerfinkle and after reviewing thousands of preapprovals I'm sharing the exact red flags that signal a buyer's financing may fall apart and what questions to ask before your sellers accept any offer here is the five-point pre-approval checklist every listing agent needs because not all pre-approvals are created equal in fact many aren't even worth the paper they're printed on let's face it we've all been there we've all seen them so here is your five-point checklist to separate solid preapprovals from risky ones point number one verification level look for language indicating the lender has verified income assets and credit not just ran a credit check the strongest pre-approval will say income and assets verified or better yet underwriter reviewed point number two specific loan program the preapproval should exactly specify which loan program the buyer is approved for conventional FHA VA etc if it's vague or says multiple programs available that my friends should be a huge red flag i don't need to tell you that there is a huge difference between a conventional or an FHA pre-approval right so there you have it point number three down payment amount strong pre-approvals state the exact down payment amount the buyer is approved for or in case of the pre-approvals my team issues we show you the purchase price and the loan amount clearly the difference is the down payment so be wary of pre-approvals that do not mention down payment or say up to x% without specifying the amount point number four expiration date valid preapprovals have an expiration date typically 60 to 90 days from issuance you know why because the credit reports expire in 120 days if there is no expiration date that by itself to me is a huge red flag because either they haven't done the thorough review or the credit report has not been ran so what's the pre-approval based on point number five contingencies or conditions look for any listed conditions the buyer must still satisfy the fewer conditions the stronger the approval if it says subject to verification of income and assets that is not a true pre-approval that means they haven't even looked at their income or at their assets for example last month I reviewed a pre-approval letter for a listing agent that looked impressive at first glance but it was missing specific loan program it had an unusually long list of conditions we called the lender and discovered that the buyer hadn't even provided bank statements yet the agent advised their seller to accept a different offer avoiding a likely financing failure so here are some questions that you want to ask your buyer's lender that reveal hidden problems when you receive an offer a quick call to the buyer's lender can reveal potential issues before they become dealers here are the exact questions to ask question number one has this file been through automated underwriting if the answer is no the pre-approval is essentially meaningless however I will give you a couple of ex exceptions to that rule usda is one of those programs where I'd say about 80% of the time the file may be ran through automated underwriting but at the end of the day it's a manual underwrite here is another example pretty much majority of VA loans can be a manual underwrite so there are exceptions to the rules but if you're looking at a conventional at an FHA or potentially a jumbo file then those questions become of utmost importance question number two have you verified the buyer's income and assets or just reviewed stated information verified information of course is much stronger than stated because again let's face it the buyer can state anything but when it comes to verification it may turn into a whole other ball game and is a huge red flag question number three are there any red flags in the file I should know about a good lender will be honest about potential challenges i'll give you an example this one actually was more on the cute side where a listing agent was actually grilling me and asking me these questions exactly about a buyer that I issued a pre-approval letter for on their listing and she literally did ask me "What is your biggest regret or what is your biggest issue with this pre-approval?" And in that case it was such a squeaky clean transaction huge down payment amazing credit scores etc that I literally had to tell her that my only downside to this file to me is that my loan amount is a fraction of the purchase price so yes an honest lender should be able to answer any question that you ask them question number four what is your average closing timeline for this loan type and what could cause delays now this reveals both their experience with the loan program and any and all potential issues given an example if it's a rural property the biggest issue in my experience with rural properties has been how long an appraisal may take because the availability of appraisers in a lot of the rural areas regardless of the state is sometimes many times very limited so yes getting an appraiser out to Timbuktu may potentially be a delay so we talk about it absolutely upfront or again coming back to USDA any file any USDA transaction no matter how fast we run through it as a lender still has to go back to USDA for the final sign off and guarantee issue and USDA turn times change daily it may be 3 days in review today or it may be 10 days in review next week depending on the volume of files they have incoming something that none of us absolutely can control right so knowing those things going in and setting the clear expectations and hearing that from the lender to me is more than important don't you agree question number five what's your company's closing ratio what percentage of your pre-approvals actually close this by the way is an amazingly great question anything less than 90% should be concerning guess who I'm hinting at online lenders because the majority of reputable independent mortgage banks the majority of brokers worth their soul should have a closing ratio of upwards of 90% and I actually tell my buyers the same thing when they're looking for an agent to represent them listen to the way the lender answers these questions it will tell you as much as the actual answers hesitation vagueness or defensiveness are all red flags a confident specific response indicates a solid pre-approval the one thing that I do differently is I actually proactively call the listing agents on the offers my clients make and I offer to have a conversation about the buyer's pre-approval the conversation about the buyer's strength and how fast we can close and if you as an agent are not familiar with the program that we have for approved the buyer under I'm more than willing and able to explain the details of that program and why we chose that program for that particular buyer case in point I just closed a transaction for a buyer we closed it in less than 15 days and it was a DSCR purchase for a rental property and the listing team was not familiar with the DSCR program and it happens no judgment here right but I explained to them and that's what I put on the pre-approval letter it's a DSCR nonQM loan i explained to the listing agent what the DSCR program was that the funds were coming from the 1031 exchange that's already been verified the sale of the relinquished property has already closed the money is already sitting at the 1031 exchange company so all we need is an identified property an appraisal and basically we're golden and that's what you really should be looking to in a lender representing your buyer is open honest and complete communication and confidence behind the pre-approval now how to compare conventional FHA and VA offers fairly against each other different loan types have different risks and benefits for the sellers so here is how to evaluate them conventional loans generally the cleanest and the fastest to close again generally there's always exceptions to the rule minimum 3% down but the perception is that the stronger offers typically have 5 to 20% down appraisals are typically less stringent than government loans but the reality is it's up to the individual appraiser because if they choose to pick the property condition apart they're going to do that no matter what the loan type FHA loans perceptionally more stringent and property requirements that could lead to required repairs again perceptionally minimum 3 and 12% down appraisers may call out issues that conventional appraisers would overlook again maybe maybe not depends on the appraiser we don't control appraisers va loans zero down payment but contrary to popular belief VA loans actually have the highest closing success rate of all loan types about 95% that's pretty damn high and funny enough being a zero down loan with no skin in the game VA loans actually had the lowest default rate during the downturn zero down no skin in the game perceived as higher risk by a lot of sellers and real estate agents is a complete myth appraisals on the VA loans yes they can be quoteunquote strict but the recent VA updates have streamlined the process significantly and compress the times for delivery of the appraisal back to us the lender they used to take longer now one more thing when you're looking at a VA offer and this is more from the heart than anything else the reason somebody has VA eligibility is because they've served our country it's an earned right it is not available to everybody out there so VA zero down is something that they've paid for with their years of service and a lot of times with their health i always give preference to my VA buyers and I always give preference and I always thank them for their service and I hope you do too when comparing offers with different loan types consider the down payment amount yes a lot of people feel that higher is generally safer although I can prove to you that it ain't always the case earnest money more skin in the game that one I do agree with lender's reputation experience with that loan type again if you're dealing with an online lender with a low closing ratio just Google the lender for God's sakes you know the pre-approval strength based on the fivepoint checklist that I've spoken about earlier the property condition relative to loan type and the requirements if you know the property is basically a fixer any Gabby loan type meaning FHA VA and USDA is going to be a nogo again as a general rule even conventional may be a stretch if the property condition is so so we can roll the dice and see what happens but again a good lender should be asking you about the property condition and should be asking you about anything they need to know about the property before ordering the appraisal so that we're prepared to address it as the appraisal rolls in and out of the system so for example if your listing needs some work a conventional offer may be better and safer than FHA even if the FHA offer is slightly higher conversely a solid VA offer from a veteran with excellent credit shouldn't be dismissed simply because it's a government loan so the truth about the pre-approval letters versus pre-qualification letters has been an ongoing raging debate not for many years these terms are often used interchangeably but they represent very different levels of buyer vetting free-qualification based solely on information the buyer provides without verification often automated and completed online in minutes essentially worthless as a predictor of closing success sorry guys don't hate me pre-approval should include credit check income and asset verification and automated underwriting system approval much stronger indicator of ability to close really seriously i mean we've done already free underwriting should be the gold standard unfortunately it's not the file has been reviewed by an actual underwriter and approved subject only to property specific items like appraisal and title maybe some minor buyer conditions these buyers are as close to cash as you can get with financing and by the way my team takes it a step further we actually have a cash guarantee option with a pre-underwrite which does make it as good as gold and as close to cash or actually sometimes even better than cash because cash buyers can knock the price down after inspections the pre-approved buyer with a cash guarantee usually does not play those games now how do you tell the difference look for specific language like this file has been through automated underwriting or this file has been reviewed by an underwriter if it says pre-qualified or doesn't specify assume it's just a pre-qualification i recommend asking buyers to provide a pre-approval certificate rather than just a letter because these certificates typically provide more detail about the reation levels and conditions down payment sources can be a red flag where the buyer's down payment comes from can be a major indicator of closing risks so here are some specific red flags to watch for when it comes to down payment are you listing a home or reviewing offers right now send me the pre-approval letter from your buyer's lender and I'll give you a free risk assessment within 24 hours sometimes within even a couple hours i'll tell you exactly how solid their financing appears and what questions you should ask before accepting or better yet recommend that your buyers get pre-approved with a lender who provides the detailed verification that gives sellers the confidence the link to my pre-approval review is in the description let's make sure your sellers don't accept an offer that's likely to fall apart [Music] [Applause]