Bryan Vogt: Welcome back to Ready-Set-Sold. I’m your host Bryan Vogt. We’ve been talking with Deb Rust of New American Funding and Dave Hui of New American Funding. Where we left off was is we’re talking about different options. I think that’s so important when you’re talking with lenders that you have a full array, you have every tool in the toolbox. It sounds like from just our talks and knowing you guys that you really do, that you can give what that person needs, what that buyer needs.
Just so you know, I know we’re talking about buyers kind of selling show, but guess what? When you sell your home, you usually become a buyer, okay? That’s not unusual, so this information works both ways.
One of the things, though, I do want to talk about and this is really key. This is a pre-qualified letter versus a pre-approval letter. They are in some ways night and day in what they’re actually saying. Maybe Deb, you can maybe tell me the difference to the listening audience of the difference.
Deb Rust: Sure. So, pre-qualification letter basically, we talk to a customer over the phone, take down enough information to pull credit. Take their income, assets, where do you think your funds to close are going to come from? How much do you think you make hourly? That sort of thing. It’s just a plug and play. We plug it in, it fits a loan scenario, we issue a pre-qualification letter. What happens then is they go under contract. We gather financials. They don’t make what they said they made. They don’t have the money in the bank they said they had. Basically, a pre-qualification letter becomes worthless.
A lot of agents in the area, a lot of lenders have decided to start doing the pre-approval letter as opposed to the pre-qualification letter. The pre-approval letter, same basic steps but we take it a step further and gather the information, “Hey, can you just send me last year’s W-2? Last pay stub you got? Most recent bank statement?” We’ll run that past an underwriter and that just puts you more vested into the game.
You have a lot more negotiating power with your sellers. You’re going in with a pre-approval, not just, “Hey, this is what you told us. This is what we think we’re going to be able to do.” We know, at that point. The pre-approval letter basically makes it to where when they go under contract, we’re just getting an appraisal and title work in closing.
Bryan Vogt: Deb, and what I heard from you, and I love that point: basically a pre-qualification letter, and this is what hopefully the top agent you’re working with knows this, this should be burned into their brain. Number 1: It’s in the contract offering. It literally says pre-approval, it doesn’t say pre-qualification or when that’s going to be coming in. Number 2: What I heard you say is, a pre-qualification isn’t worth the paper it was written on. It’s someone calling up, and look, this is not demeaning people, our buyers and things of that nature. It doesn’t mean it can’t work. The trouble is when it doesn’t work.
The question you, as a seller, has to decide, “Is it worth that chance?” Because on the selling side, I can tell you, what happens is you put your house on the market, they don’t have, or they have a pre-qualification but they haven’t gotten the pre-approval, and now you’re off the market for seven or ten days and all of a sudden we have a situation that we heard about not too long ago: not all lenders are equal. They’re not on top of it like you guys. Guess what? The word came back that they got nothing.
Now, if you’re a seller, just so you know this, there is no recourse. You took in the deal. You took in the chance. That’s why it’s so important that you as a seller, and you as an agent, your agent understand the difference between a pre-qualification and a pre-approval. Pre-qualification, think of it as not worth the paper it was written on, could be, but may not be. On the other side, having that solid gold, basically, you know that they have the monies in the bank for the down payment. Right, Deb?
Deb Rust: Correct.
Bryan Vogt: That they have what they say they’re making, they’re making. Their credit ratio is good. Their credit score, everything is good. That is so, so important. Dave, I’m sure on the same side, even on the buyers side, because I can tell you there’s confusion. I think that’s the important thing, sitting down with a lender and really discussing, “What are we doing?” Look, it’s a hot market, I get that, but this isn’t done by the seconds, or nor by the minutes, nor should it be. Rushing around, and if you have an agent that’s doing that you might want to think about that too, even if they just sold your house.
Rushing around with your head cut off and saying, “Oh my gosh! Oh my gosh! Here. Here, call this number here and take 10 or 15 minutes and oh, let’s just move on. Let’s go look at a house. Let’s go buy a house.” I can tell you right now, it doesn’t work very well on the real estate side. I’m sure you hear the same stories on your side. The importance, Dave, of sitting down and talking to people.
Dave Hui: Yeah, absolutely. One of the keys with the process is just getting it done as quickly as possible. We not only have a closing date on the contract that we have to meet, but we also have an obligation with a loan commitment to have that to the agents and to the buyer within 10 days prior to closing, is typically when it happens. The efficiency part is huge. We gather everything up front, we get it in front of a processor and an underwriter right away.
We are a direct lender so we don’t sell our loans. We don’t have the typical underwriting overlays. We can get it approved more quickly, therefore close more quickly, which, that’s why we have a 22 day turnaround. The upfront speaking with the client, getting the information we need right away is key. Absolutely.
Bryan Vogt: It is key and that’s the thing that you have. It’s a win-win for the seller and the buyer. That’s a key point: the buyer knows where they stand at. There’s no guess work. We had a situation not too long ago where they had a pre-qualification. They lost a house over it. It wasn’t that they couldn’t have done more money, that they couldn’t have spent more money but it was just a, “Hey. I’m thinking about doing $160,000 house.” The lender said, “Hey. Yeah, you’re good for it. Boom.” Well, the buyer, good or bad, said, “Well, I’m only approved for $160,000.” That’s what happened.
Well, they found a house for $170,000, the tried to put a deal together, hot market. They thought they were only at $160,000. They lost the house. They were approved, finally, when they went to a different lender, for $200,000. They could have pulled the trigger if they wanted to. They could’ve gotten their dream home and they lost out. It not only hurts the sellers and puts a lot of risk that isn’t needed, but again, the buyers. That’s really who you’re servicing, right Deb?
Deb Rust: Absolutely. I will very rarely talk sale price with a borrower. I always talk payment, just so they’re on the same page. The reality is every $1,000 you go up on sale price roughly adds $3, $4 to principal and interest. That’s nothing. There’s a huge difference between $150,000 house and $160,000 house, so they need to know that you’re really talking $30, $40 a month difference in payment and that’s not a qualifying problem. I’ll talk payment all day long with them.
Bryan Vogt: I love what you said there because that is so true. We hear that on our side again, even if you’re talking $40,000, that situation $160 a month. When you’re making a $1,200 or $1,500 payment, it’s not quite the same, he has to put it in ratio. Again, you’re buying your dream home. You’re buying your dream home that you might be there for 7, 10, 20, 30 – we just sold a house that the owners had been there for 55 years, so you can have a life together. That’s so important.
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