Real Clues

[RealClues] #282: Mortgage (part 1)

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This week at www.LuxuryClues.com:
Custom building series: Do you need to inspect new luxury properties? A lesson about service from San Francisco's top Blues spot; The $700 breakfast and the $16,000 suite; plus much more.

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Table of Contents:
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1. CoachingClues: Seven Strategies for Working in Today's Shifting Mortgage Market
(Part 1 of 2)
2. Welcome Notes: Has Open House Died?
3. Reprise: Give Your Buyers Sound Loan Advice
4. Create a Better Life: Ten Tips to Help You Make Better Use of Your Time (Part 4 of 4)
5. Featured Products:
*Hot Marketing and Prospecting Value!
*SNEAK PREVIEW of our new "Listen and Learn" program launching July 15, 2007: Get the Listing Every Time Teleclass
6. Increase Your Production with Personal Coaching
7. Give Us Your Feedback on this Newsletter
8. How to Subscribe/Unsubscribe

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1. CoachingClues: Seven Strategies for Working in Today's Shifting
Mortgage Market (Part 1 of 2)
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You have a buyer purchasing a high quality new home with 20 percent down, excellent credit, and fully documented income including two years of documented tax returns--it's a no brainer on getting loan approval. If you think that's statement is true, think again.

Today's lending environment is rapidly evolving from one where almost anyone could obtain a loan to one where even the most qualified borrowers may be sweating about obtaining loan approval. The "good old days" of taking orders are dead. Instead, to survive in this new and often hostile environment, you will need strong negotiation skills coupled with strategies on how to avoid loan problems. As credit standards tighten, expect to see more of the following types of scenarios.

1. "Stated-stated" loans: RIP.
"Stated-stated" or "easy qualifier" loans are becoming harder to find. In the past, lenders made an approval based upon the strength of the buyer's down payment and credit history. They did not verify tax returns. Due to the increase in interest rates coupled with the sub-prime fiasco, even A+ borrowers are now encountering closer scrutiny. Don't be surprised if your buyer applies for a "stated-stated" loan and the lender comes back requesting tax returns and complete documentation. These fully documented loans, where the lender carefully scrutinizes the borrower's credit and fully documents the borrower's income, are the new gold standard for making loans. As a result, both agents and clients will have to cope with tougher underwriting standards and more borrowers who will fail to qualify.

In order to make sure your transactions close, have buyers pre-approved, not just pre-qualified. "Pre-approval" means that the lender has checked the borrower's credit and verified income. All that is necessary to close the transaction is the appraisal on the property and the title report. In contrast, when buyers are "pre-qualified," the lender has seen the buyer's loan application but has not verified credit. Pre-qualification means that the lender will approve the loan, provided the credit, the appraisal, and title check out properly. Thus, it's smart to have all buyers obtain pre-approval before ever taking them out to look at property. If the buyers resist this process, chances are they have problems that will prevent them from closing a transaction. Don't waste your time. If you are representing a seller, don't take one of your listings off the market until the buyer has obtained loan approval. An even better solution is to make a note in the Multiple Listing Service that the seller requests a pre-approval letter with any offer.

2. Tax returns are no longer an option for the self-employed.
When lenders do a fully documented loan, they thoroughly examine the borrower's tax returns. This is especially true for anyone who is self-employed. Part of the challenge in working with self-employed buyers is that they tend to be aggressive on their deductions. This brings their net income down which makes it harder for them to qualify.

If the buyers decide to address this issue by doctoring their tax return data, they can end up in serious trouble. "Defrauding a lender" can result in serious fines and even imprisonment. Furthermore, they also run the risk of the IRS prosecuting them for tax evasion. In the past, it was difficult for lenders to cross check what was filed with the IRS. Today, lenders can call the IRS to verify whether the income the buyer claimed is the same number that they filed with the IRS. Again, working with pre-approved buyers can help you reduce many lending hassles.

3. Protect your sellers from rising interest rates.
When I first started in the business in 1978, interest rates were rising. (To put this in context, fixed rates were 10 percent and "variable" rates were 9 percent.) By early 1979, rates were above 10 percent and no one ever thought we would see single digit rates again. There are two important practices from the past that are critical in today's mortgage environment.

First, if you are representing the seller and the buyer's agent writes in an interest rate of 6_ percent, it's smart to counter that the buyer will accept up to a 7_ interest rate. Be sure to request documentation that the buyer can qualify for a loan at the higher rate. It's also smart to counter that they will take an adjustable rate mortgage in case they don't qualify for a fixed rate mortgage. Remember, if the interest rate exceeds the amount in the contract, the buyer has the right to cancel the transaction.

Second, never write in "prevailing rate." You don't want your buyer applying for a seven percent loan and learning they have to take a nine or ten percent loan because they have poor credit.

Need more help with today's changing negotiation environment? If so, see next week's article on "How to Cope with the Shifting Lending Market, Part 2.

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2. Welcome Notes
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Welcome to our new subscribers this week. Each week RealClues provides you with great strategies to improve both your business and your life. If you find this issue of RealClues helpful, take a moment to hit the "forward" button and send it to another friend in the business.

I'm hearing feedback from all over the country that open house is not generating visitors. The question is whether this is the result of a slowing market or is it from being able to see properties on the web? Based upon the few hot markets in the country, the challenge with open house appears to be market related. Strong markets are still experiencing good open house traffic. You can improve your open house attendance by personally inviting neighbors and residents of nearby areas to visit your open house. You can do this via the regular mail or by door knocking. A little effort can generate a much better return.

If you're stumped about how to generate leads in this market, our new "Listen and Learn" program has some outstanding resources for you. We launch the week of July 15, 2007. Our first month of interviews and teleclasses will include "Thirteen Strategies for Generating New Buyers." You will also learn the secrets of earning a full commission, plus hearing from three top agents who share the secrets of their success. Our technology series will launch with four interviews on how to set up a blog and how to market your blog. It will also include interviews about the latest technology trends. Best of all, the price for both of these resources is less than a dollar a day.

Have a safe and sane Independence Day.

Warmly, Bernice Ross, MCC, and Byron Van Arsdale, MCC
www.RealEstateCoach.com, www.LuxuryClues.com, www.RossdalePress.com, www.ConferenceCallTraining.com, and www.TeleconferenceLine.com

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3. Reprise: Providing Your Clients with Sound Loan Advice
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In 2005, I had already spotted the trends that have lead to the collapse of the sub-prime market as well as the market slow down we're seeing most places in the country. This article is a must-read if you're working with buyers and want to provide them with the best advice possible. Taking a 40 year or interest only mortgage is a poor idea. This article explains why:

Give Your Buyers Sound Loan Advice
http://www.realestatecoach.com/articles_archive/art20051017.html

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4. Create a Better Life: Making Time When There Isn't Any:
Ten Tips to Help You Make Better Use of Your Time (Part 4 of 4)
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Would you like to create some additional free time in your schedule? If so, today's article shares ten strategies for making your business and your personal life more efficient. Ten Time Efficiency Tips
http://www.realestatecoach.com/articles_archive/art20050221.html

If you missed the first three parts of this series, you can read them at:

Part 1
http://www.realestatecoach.com/articles_archive/art20050131.html

Part 2
http://www.realestatecoach.com/articles_archive/art20050207.html

Part 3
http://www.realestatecoach.com/articles_archive/art20050214.html

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5. Featured Products: Hot Marketing and Prospecting Summer Clearance
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http://www.profcs.com/app/netcart.asp?MerchantID=35347&ProductID=3621136
(The link will automatically be disabled once the offer is sold out. If the link works, you will receive the manual with your order.)

SNEAK PREVIEW of our NEW Listen and Learn program:
Sign up today for our sneak preview "Get the Listing Every Time." You can listen to this at any time by first clicking on the link, filling out the simple form, and open the link. This one hour class will show you how to get more listings at the right price. What are you waiting for--there's no obligation. Check it out for yourself and watch for details about our new Listen and Learn Program that starts the week of July 15, 2007.
http://www.profcs.com/app/netcart.asp?MerchantID=35347&ProductID=3508879

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6. Increase Your Production with Personal Coaching
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Looking for a well-trained coach who knows the real estate business? Our coaching team can help you increase your production and make your dreams come true! Send an e-mail to Shane@RealEstateCoach.com and we'll help find the right coach for you.

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7. Give Us Your Feedback On This Newsletter
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We want your feedback-to share your thoughts and suggestions, please e-mail us at Shane@RealEstateCoach.com.

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8. How to Subscribe/Unsubscribe
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Visit our Web site, http://www.RealEstateCoach.com to subscribe/unsubscribe to RealClues.

Copyright (c) 1996-2007, RealEstateCoach.com and Teleclass4U.com, LLC. All rights reserved. Permission is granted to reproduce, copy or distribute RealClues as long as this copyright notice and full information about contacting the contributors to this newsletter is attached.

Contributors to this newsletter:
Bernice Ross, MCC, and Byron Van Arsdale, MCC, Owners, www.RealEstateCoach.com, www.LuxuryClues.com, www.ConferenceCallTraining.com; www.RossdalePress.com; and www.TeleconferenceLine.com
Shane Bowlin, REC General Manager

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