1. Always Provide a DU Underwriting approval with the offer
It is important that all buyers have an offer that is accompanied by a DU underwriting approval. A DU approval is when the buyers application has been ran through Fannie Mae’s or FHA’s automated DU (Desktop Underwriter) and will be issued with either an approval or a denial.
An offer letter accompanied by a DU underwriting approval will always place ahead of a basic approval letter, as a DU underwriting approval shows the most important information needed on a buyers profile to give the seller a good idea of the strength of the buyer. For example it lists the credit scores, the debt ratios and the type of loan they are approved for, as well as other information too. Also it is important to note that the DU underwriting approval must match up with the loan program the offer is submitted for, it is not uncommon for example, to have a buyer who has an FHA DU approval but is submitting an offer for conforming financing.
2. Make sure the buyers approval is current
Make sure the date on the buyers approval letter is current and the DU approval has an approval date from the past 30 days. It is not uncommon these days for a buyer to be submitting offers for up to 4-6 months, so sometimes the pre approval letter or the DU underwriting approval has a date from 4-6 months ago. Because the buyers credit scores might have dropped and they may not qualify for a particular loan program anymore, it is best to make sure that all the dates on the approvals are within 30 days.
Remember Fannie Mae and FHA have been making changes to their DU underwriting guidelines very frequently recently, so the buyer may not qualify for the particular loan program that they got approved for a few months ago.
3. Provide proof of down payment funds
Always provide proof of where the down payment funds are coming from for the buyer. Make sure to send over recent bank statements or whatever asset account they are using for the down payment. Make sure there are enough funds in the statements you are providing to match the % of down payment the offer is for. As many times statements are provided but there are not enough funds to cover a 20% down payment for example. If the buyers are going FHA and are getting a gift from the parents, provide a copy of the gift letter from the parents.
4. Provide a copy of the buyers credit report (first page only)
Very few offers come across with proof of the buyers credit scores, so this is a good way to stand out. If the buyers credit scores are very good, list them on the pre approval letter and point this out on the offer. Also provide a copy of the first page of the buyers credit report that lists the 3 credit bureaus and the 3 fico scores, make sure to black out their social security numbers for privacy issues. This is a great way to provide full transparency on your buyers offer, so the seller can see the credit strength of the buyers profile.
Now you may say that providing a copy of the buyers credit and bank statements is a private issue, many sellers will acknowledge this but will also advise that they will just move onto the next offer if they cannot see this information.
Be prepared to answer these questions
Many times the seller may ask other questions in regards to a buyers profile to make sure they will qualify for financing. Here is a few examples that the seller may bring up in regards to your buyer.
1. Are there any employment problems?
If the buyer is self employed, make sure the buyer has filed their taxes for 2009, as some self employed people file extensions on their taxes. If they have not filed, then of course the lender will have to use 07 & 08 taxes to get approved, and if they had a bad year for one of these years they may not qualify for the loan anymore.
2. Does the buyer have any additional funds?
This is an important question, as sometimes the sellers are making sure that buyers have back up funds for a plan B just in case there is a change in the transaction that will require additional funds to close. For example, sometimes there are repairs needed on a property that will pop up on an appraisal that the seller will not pay for, or perhaps the appraisal may come in a few thousand short which may leave the buyer a few thousand short for closing, as the lender will only finance the loan based on the appraised value.
Make sure if someone asks these questions that you know the buyer has additional funds for a Plan B scenario. Many times FHA buyers are breaking the bank to buy a home and this can be off putting to a seller in case any additional funds maybe required, it is always a good discussion to have with a buyer to make sure they have “access” to any emergency funds in case a situation arises.
An update on rates. Fed’s QE2 has backfired so far!
The latest plan by the Feds "QE2" to stimulate the economy and lower rates has suddenly backfired, as interest rates have spiked up almost .5% in the past 5 trading sessions. Unfortunately the Fed’s new program has been met with a lot of resistance around the world and at home, as the Feds have been accused of manipulating lower the value of the dollar. Because of this new uncertainty, US treasuries and bonds have suddenly sold off thus raising mortgage rates along with it.
At the recent G20 economic conference which President Obama attended, many countries were not supportive of the QE2 plan and publicity said so, and at home it is also coming under fire from Republican economists and politicians, threatening to yank the central bank deeper into partisan politics.
I believe this is a knee jerk reaction by the markets to the Fed plan and interest rates will probably come back down over the next few weeks when this uncertainty alleviates. But in the meantime, it does serve as a timely reminder to all buyers and homeowners just how fast interest rates can rise, as 3.875% was on the table for some buyers less than 3 weeks ago, today rates are back up to 4.5% on the 30 year fixed.
I hope you found the information useful in this newsletter. If you have any questions about any of the inforamtion above, please do not hesitate to contact me directly at 858-200-9602. I look forward to chatting soon.
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Nov 2nd, 2010 
