Is the Borrower Bonafide?

One of my favorite movies, "O Brother Where Art tho?"has a recurring statement by Holly Hunter to George Clooney. While she is married to George Clooney, he's recently escaped from the chain gang and she wants to marry a proper man. She keeps referring to her new love as "Bonafide". He has a real job and is a sure thing. He is genuine. Responsibility to her children has over-ridden any love or emotion.

Whether you are a Realtor, Home-Buyer or Home-Seller, you have a vested interest in making sure that the offer that is being submitted for the purchase of a property is bonafide. Traditionally, a potential buyer gets a pre-approval letter from a lender indicating that they are pre-approved for a loan at a certain amount. But not all pre-approval letters are equal. Nor do they guarantee a smooth close. Here's why.

1) A pre-approval letter is not worth the paper it's written on if you do not know and trust the lender. Even then, it's not a guarantee. It is not binding on anyone and is only as good as the work that was done to give the pre-approval. This isn't to say that a pre-approval letter should never be accepted, or that every lender is a liar, but it's not binding. Mistakes can happen, or things surface that were not known.

2) A DU (Direct Underwriting) finding is better, but is still not binding. It shows that the lender has at least taken a full application and that the on-line origination system has given it an approval SUBJECT TO verificationof all pertinent information. In other words, prove what you have stated is fact. But the loan has still not been submitted to a lender nor has an underwriter verified the information or an offer to lend been extended. Also, a pre-approval letter could be generated with this information.

3) A Conditional Approval is even better, but is still not binding. The file has been submitted to underwriting and an approval has come back with the outstanding conditions. These could still include many borrower related issues that could stall or kill an approval.

4) A credit approval from a lender with all borrower conditions signed off on is money in the bank!! If this hasn't happened prior to a buyer looking at houses it still should be able to happen within the 10 day inspection period. Realtors, give yourself protection by writing this into your agreements. Make sure that you have a credit approval with all borrower conditions signed off within that same time period that a buyer has to walk away. If all conditions are not met, at least you can see what is outstanding and make a judgement decision as to whether or not you want to move forward.

5) A Public Records search on the Borrower will reveal their ability to purchase, or any potential red flags. This also should be able to be done during that 10 day period if it hasn't been done prior to looking at homes.

With a Credit Approval with all conditions signed off and a Public Records search showing that a potential buyer does not have any liens or judgements against him/her, a potential buyer now becomes a solid borrower with the ability to close quickly. All responsibility now shifts to the seller and the ability of the property to be financed.

Buyers -Put yourself into the strongest possible position to buy. Work with a lender who will get you a true pre-approval... a Credit Approval with all conditions signed off. Take the extra time to have your credit examined. You might be surprised at what a a few points to your score could do to improve your interest rate and your purchasing power. Spend a little extra to get a Public Records search to confirm that you don't have any surprises that you are unaware of. Mistakes can happen. What you don't know could cost you your dream home.

Buyers agents- Time out!! Put your buyers long-term needs before their short-term desires. Get them "Bonafide". Several of my lenders will give a credit pre-approval with a property to be determined. I even have two who will allow me to lock a rate without a property. One will allow for rate extensions with a re-lock at a lower rate. Protect yourself and make your borrower stronger by requiring that their lender gets this done. It takes a little more time, but strengthens your deal. Ask your escrow officer to do a Public Records search. Again, protect yourself and strengthen your bargaining position.

Also, please, please, please give us loan officers the time to get your borrower pre-approved. If we get a call Saturday afternoon about a new client who has a few credit issues and wants to make an offer on a house, don't expect a rock solid pre-approval or the best rates. At least give us a few days to be able to work our miracles.

Listing Agents- Take your due diligence a step further, but please show grace as most Realtors/lenders will not be on the same page and might be offended. Suggest that it would strengthen their offer if these things were done. Ask them "Is your buyer Bonafide"?

With a little more work up front, there should be very few deals that fall apart at the last minute because of borrowers with surprises.

Call me. I make buyers bonafide. 503-421-0096

Larry Morris is a loan Officer with Equipoint Financial Network in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon Real Estate. He can be reached at larry.morris@equipoint.com . His website is http://www.pdx-mortgage.com/ . This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved

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