How can real estate pros prepare their clients to survive the mortgage process?
While some sources suggest that getting a home mortgage loan is getting easier, it will continue to be a quirky and trying process until major innovations are implemented. Mortgage struggles are one of the most common reasons that real estate deals fall apart. With fallout ratios that can top 30% of all contracts signed; mastering this part of the industry can help optimize business, maximize revenues, and build a superior reputation. Acing this not only decreases the chances clients will drop out, but can make all the difference when real estate agents, investors, and others are buying and selling houses themselves. So what’s so difficult about getting a mortgage today? How can these challenges be navigated to a successful closing?
For most, getting a mortgage loan is not an easy or fun process. The process is notorious for constant new demands by underwriters and changing terms. The final terms will almost invariably be worse than the original quote. Interest rates and monthly payments will be higher and buyers will have to bring more money to closing than they expected. Original ‘loan approvals’ are mostly worthless. Once a formal mortgage application is made, the real conditions start flowing. Few may appear to make common sense to borrowers. There may be extra insurances, explanation letters to be written, trips to out of area locations to acquire old paperwork, and lots of resending the same documents again. It’s enough to make even a zen monk get crazy. For the average first time home buyer, this is can be an extremely volatile emotional roller coaster. When underwriters ask for tough conditions and a parent has to explain to their spouse and kids they may not get their dream home, it can get ugly. No one wants the stress. The headaches, extra money, and wasted time may all be palatable, but when it comes to causing emotional stress to their family members, many will draw a firm line in the sand. So how can real estate agents, investors, and sellers, help minimize these issues and keep more deals together?
Setting the Right Expectations
All too often, real estate professionals try to make the process of buying a home sound easy. They promise a perfect, glitch free, enjoyable adventure in buying their dream homes. If that ever occurs, it is a miracle, and the exception. This can make it worse when challenges and new demands start popping up. It may well be worth over preparing clients and buyers for the worst. Tell them the process isn’t easy, that the end terms will probably be more expensive, it will take longer to close than expected, and they should expect bizarre sounding conditions from underwriting. If that doesn’t occur, then they will love you and rave about you to others. When it does happen, they won’t panic and will understand that this is what you meant about it getting challenging. That way, things won’t seem so bad and your clients will be confident that you will help them through the process. This also helps them to be prepared to ace any hurdles. If buyers get extra documentation ready before they even start, they’ll be ahead of the game. That sure beats being asked for a tax return the day before closing and finding out the IRS is backed up for 90 days.
Help buyers understand and know where they will and won’t draw the line in advance. If they are applying for a loan with 3% down at 4% interest, will they still stay in the deal if rates hit 5% and they have to put 5% down and bring an extra two thousand dollars to closing? At what point will they have to call it a day?
Never underestimate a client’s stress level. For those buying homes they plan to live in, they will often spend many sleepless nights thinking about the deal. Their whole family’s hopes and dreams – and cash – is riding on this. You might not be able to do much, but you can offer a sympathetic ear and encouragement. Simply dismissing their calls and emails is not going to help get things to closing. They don’t do this every day. So take the time to make them feel better.
Not every deal is a nightmare. Some will close more easily than expected, but it is smart to be over prepared. These issues can also be minimized by working with better lending partners, choosing better qualified clients, and considering alternative sales processes. Can you seller finance, or at least partially seller finance, your properties to avoid these issues altogether?