As a real estate professional, is there anything more frustrating than having a deal falling through because of an issue with financing?
Even with well-qualified buyers, seasoned agents know that unexpected complications during the home loan process can delay, or completely derail, your transaction. You know how heartbreaking this can be for your buyers (plus, you were probably counting on that commission check.)
To help you and your buyers avoid losing a deal, we’re going to break down some of the most common mistakes buyers make during the home loan process. And we’ll explain how you can help keep your buyers from making these mistakes.
Most Common Mistakes Buyers Make During the Home Loan Process (and How to Prevent Them)
Here are the mistakes we see buyers making most often during the home loan process. And here’s how you can help save your deals by providing sound guidance to your buyers.
Mistake #1: Shopping for Homes Before Pre-Qualifying for a Home Loan
Imagine this…Your buyers fall in love with a home, only to find out once they’re under contract that they don’t qualify for a large enough loan to complete the purchase. Maybe you don’t have to imagine; maybe this has happened to your clients.
This is why it’s important to find out how much your buyers can qualify to borrow before they even start their home search. This is done via pre-approval. Pre-approval applications can often be completed quickly and conveniently online. Your clients will answer some questions, upload their financials for review, and get a reply shortly thereafter.
Not only does this help your buyers to search within the correct price range, but it also alerts them to any issues that could prevent them from securing a home loan. Plus, being pre-approved makes your buyer’s offer stronger by assuring the sellers that the buyers are likely to qualify for the financing needed to close the deal.
Mistake #2: Assuming They Can’t Qualify for a Home Loan
Real estate agents miss out on so many deals simply because buyers think that a below-average credit score or lack of down payment funds will prevent them from getting the loan they need to buy a home.
With so many mortgage loan options and down payment assistance programs available, local renters may be closer to homeownership than they realize. Spread the word: Send mailers, host renter-to-homeowner seminars, and post targeted content on social media.
Mistake #3: Failing to Review Their Credit Report
A study by the Federal Trade Commission found that as many as one in five Americans have an error on their credit report. And around 5% of Americans have such an egregious error that it negatively impacts their loan applications.
Encourage your buyers to review their credit reports for accuracy. They can get a free copy of their reports every year from sites like annualcreditreport.com. Any errors found can be reported to the credit bureaus to be corrected.
Mistake #4: Opening (or Closing) Lines of Credit While Applying for a Home Loan
You might already advise your buyers against taking on new debts while applying for a home loan. And you’re absolutely right to do so. New loans shift an applicant’s debt-to-income ratio, which requires a re-review of their finances and can affect their ability to qualify for the loan under the originally-offered terms.
But did you know that closing credit lines can also impact their applications? Closing a credit line decreases the average length of their active credit lines, which can cause a credit score to dip temporarily.
Make sure your clients know to keep their credit card lines open when they pay off the balance. They should also avoid paying off a non-revolving credit line during the application period if possible.
Mistake #5: Making Large Withdrawals or Deposits
Lenders will review your buyer’s bank statements throughout the underwriting process. And they will want an explanation for any large deposits or withdrawals from any account. Large withdrawals, for example, can impact your clients’ reserve funds, which can change their financial stability. Large, unexplained deposits could potentially be a loan, which would impact the client’s debt-to-income ratio.
Easily explained transactions, like tax refunds or employment bonuses, are not an issue. But you can advise your clients to save their high-value transactions for after closing.
Mistake #6: Changing Jobs
Job stability is a factor in qualifying for a home loan, particularly as it relates to stable income. A job change can completely alter an applicant’s financial ratios and cause the lender to start the process from the beginning. Even a promotion with a pay raise can create complications because some loan types and down payment assistance programs have income limits.
Let your clients know how important it is to remain in their current position until after closing.
Mistake #7: Ignoring Information Requests from Lenders
Homebuyers are understandably busy. Between the inspections, negotiations, packing, and planning, they have a lot on their plate. But securing their home loan on time is crucial. And when your buyers take days to respond to a request for information from their lender, the whole process can be delayed.
Sit your buyers down and stress the importance of prompt replies to lender requests. The faster they respond, the faster the lender can complete the underwriting process so that your deal can stay on track to close as scheduled.
Prepare Yourself For Success
Keller Home Loans proudly supports real estate agents as you advise your buyers on home purchases, including general home loan information. Feel free to reach out and discuss the current home loan options with any of our experienced staff. You can also refer your buyers to Keller Home Loans for exceptional service and competitive loan terms.