When selling a home there’s always a chance of unforeseen challenges. Many of those concerns, as well as potential solution solutions are addressed in the “greatest fears of selling a home” article.
Below is the first round of questions that a seller (or Listing Agent) should ask a buyer’s lender before executing a sales contract. The second set of questions can be found here: questions to ask about a lender. Asking these questions will allow a seller to better anticipate potential issues.
Questions To A Mortgage Lender About Your Buyers
A homeowner takes a giant leap of faith when selling their home to someone that needs financing. The seller is trusting that the buyer is working with a competent lender. Unfortunately, that is often blind confidence.
It’s absolutely astounding how few realtors actually contact a lender before accepting an offer. In our 20 years of experience, there has been only one stand-out conversation.
What’s insane about this statistic is that a lender can easily make or break a deal. In our experience, the lender is the culprit in most of the “horror stories” we hear about when a sale goes awry.
Below are suggested questions that we recommend asking a lender to ultimately determine if a home buyer is truly qualified and able to close on-time starting with the big 3 – Credit, Income, and Assets. Listen closely to the lender’s answer to determine how to move forward with their buyer’s offer.
Always start off with the following question:
How do you know the buyers?
A: This question just provides an indicator of the lender / borrower relationship. 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 the buyer is from another source (i.e. a lead from internet, etc.) it doesn’t necessarily discount the buyer.
This question will also provide insight as to the type of business a lender might ordinarily do. For example, the bigger, national mortgage companies typically don’t have the highly skilled professionals that build a business off of client relationships.
Questions About Credit
Q: Have you pulled the buyer’s credit and if so, was it a hard or soft pull? When was it last pulled?
A: If they pulled the report 6 months ago, it is no longer relevant and a new report will need to be pulled. We are looking for 3 months or less.
Ask if it’s a tri-merge: a credit report combination of individual reports from Experian, Equifax, and TransUnion.
Q: Tell me more about their credit?
A: 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?
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?
Q: What problems do you anticipate? What might or could happen that would interfere with our closing? 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. 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.
Questions About Income
Have you seen this their income documents (paystubs, tax returns, W2s) from within the past 60 days?
If they say, “I don’t need tax returns because ____ program don’t require that” I’d ask them to tell me about that program. Get as much information as you can to ensure they are doing their due diligence.
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?
A: 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 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.
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. Typically, most programs are going to require tax returns to validate them. Pay attention to what the lender says and their implied competencies about the subject matter.
Questions About Assets
Do they owe you any other documents?
Do the buyers own another home, land, or other real estate 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.
Have you reviewed their bank statements and are the funds for closing liquid and in their account? Are the funds seasoned?
A: This is an important question as it can reveal some moving parts to the file. Has the money been sitting there for longer than 90 days and “seasoned?” If it didn’t come from viable sources, that is a problem. Lenders may or may not be able to use those assets.
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.
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.
For example, there is a high chance that a buyer going through a divorce will have a more difficult time when it comes to buying and closing on a house. A lot of work will get done only to have things get sticky at the end because the divorce wasn’t finalized in time.
Lenders need everything to be completely set in stone – nothing pending. Our team will always make sure we communicate. Remember…ask, ask, ask.
If you’re a realtor and you’re not asking these questions, it’s time to start adding this to your workflow. If you’re a buyer, ask your realtor if they’ve talked to your lender. Trust and communication is crucial when it comes to major events like buying your new dream home.
For other questions or concerns, reach out to our awesome team at Mortgage Mark today.
Loan Officer, NMLS # 729612