Now that you know what Questions To Ask About A Lender you now need to ask the mortgage lender about your buyer. Here are some suggested questions that we recommend asking to ultimately determine if a home buyer is qualified and able to close on-time.
Questions To A Lender About Your Buyers
Q: How do you know the buyers?
A: Ideally the answer would be something like: they’re a past client, a friend, a referral from the Realtor, etc.. Each of these would indicate an existing relationship and familiarity with the buyer. That said, if they buyer is from another source (i.e. a lead from internet, lead they purchased, etc.) it doesn’t necessarily discount the buyer. This question just provides an indicator of the lender / borrower relationship.
Q: Have you reviewed their credit? Is there anything on there that needs to be updated or addressed – meaning are there any disputes that need to be removed, tradelines that need to be updated, or debts that need to be paid off?
A: If the answer may be “yes” to some of these questions BUT each has potential to either delay the process, or worse, change the approval to a decline. The follow up question to a “yes” is: what needs to be addressed and when do you expect that to be resolved? (PS. A lender may not be able to give an exact timeline for the resolution but their confidence level can give you a good gauge as to their competency and the borrower’s strength).
Q: Do the buyers own another home and do they need to sell it to qualify?
A: If a buyer qualifies with multiple mortgage payments then there’s no real concern; however, if a buyer does need to sell their home to qualify for a home loan then your risk as a seller is that you are now dependent on their ability to market, negotiate, and sell their home AND their buyers.
Q: Have you reviewed their entire last two years of tax returns – including all their schedules? Meaning, have you addressed any Schedule A unreimbursed business expenses?
If the lender hasn’t reviewed the full tax return then you may want to request that the potential buyer submit their returns for review before accepting a contract. A common mistake amongst lessor Loan Officers is to miss (or forget) unreimbursed business expenses from the 2106 / Schedule A of the tax return and not count those losses against the borrower. Even a “normal” W2, plain vanilla, employee could have these expenses so be sure that the Loan Officer has checked for these items. It’s Mortgage 101 but is worth asking.
Q: Are any of the borrower’s self-employed, own more than 25% of a business, earn commission, or a contract employee? If so, for how long? Have you reviewed the last two years of their personal and business tax return and have you calculated their income based off the last two year’s returns?
A: If someone falls under any of these categories then more is required from the underwriting process and history of that income is required. We won’t go into the details here about what’s required since there are too many scenarios but we recommend you pay attention to what the lender says and their confidence level and their implied competencies about the subject matter.
Q: Have reviewed their bank statements and are the funds for closing liquid and in their account at this time?
A: This is an important question as it can reveal some moving parts to the file. If the funds aren’t liquid and already in the buyer’s account it could imply either a gift, some liquidation of assets, the sale of some assets, etc. While each of these options is perfectly acceptable, it does merit a discussion to ensure the proper actions are being taken to ensure the receipt of funds in time for closing.
Q: Is there anything pending (like a divorce, job transfer, proof of asset liquidation, the HUD from a sale of a property, etc.) that needs to be resolved before we can close? Similar question, is there any documentation that will be required that they haven’t provided or can’t provide at this time?
A: Ideally the answer is “no” but if there are there are outstanding items, just listen to what they are and inquire more about each answer to ensure the timing AND plausibility of each. Unfortunately we’ve seen too many instances where a pending divorce that was supposed to be finalized in a “few weeks” turned into a few months.
Q: Will the borrowers be getting a second lien? Have they reviewed the credit package?
A: This questions is mainly to see if there’s a second lien but won’t give your more than that. If a buyer is getting a second lien, the chances are that the second lender hasn’t been selected yet (and won’t be until the borrower is ready to lock a rate). And even if a second lien lender has been selected, they won’t have reviewed the package as they require the full package. This question is just to see how the lender responds. As an FYI, our answer would sound like this “no, they haven’t reviewed all the docs but I have reviewed the buyers docs, compared them against the 2nd lenders guidelines, and we’ve worked with this investor for X years).
Q: Is there any reason why these borrowers won’t get approved AND/OR close on-time?
A: Hopefully the answer is “no” but ask this question and see what they say.
Questions About The Mortgage Lender