Stand Out by Knowing the New Lending Criteria

The Market is changing. That is a fact.  How you choose to handle this change will dictate whether you fail or succeed in the New Year.  I have heard Agents from coast to coast say “I can’t get loans approved anymore” or “There is no money out there” That is simply not true. There is money out there. You as an Agent need to find that money and learn how to prepare your Buyers for the change in the market.

Rose Bernstein from Prime Mortgage in Rochester, NY said “While there is no shortage of mortgage money available, mortgages are no longer an entitlement to the unqualified. Lenders require borrowers to have employment; to verify an established pattern of savings for down payment and closing costs; and to evidence the willingness to repay revolving and installment debt as indicated by credit score. Those of us in the mortgage industry applaud this as prudent and responsible lending practices.” Well said, Rose. 

While some Agents may be moaning and groaning about this statement, it is actually a good change for the Real Estate Profession. It is good because you as an Agent need to be well trained and educated to survive. You have a chance to stand out and show that you are a Real Estate expert that can be depended on.  

Lending criteria is tightening up. My conversations with people in mortgage lending around the country lead me to believe we are going to revert back to the type of qualification and underwriting criteria that existed for decades prior to the relaxing and elimination of these standards that occurred and began to occur in 1997.

Below are standards that existed before 1997 which may be indicative of what is soon going to be required for Buyers to be able to purchase a home.

1. Income: Banks may begin again to use qualifying ratios, income and debt ratios.  The borrower’s income is multiplied by a percentage.  The resulting number is the maximum that the bank will allow a borrower for PITI (Principal, Interest, Taxes, Insurance), a higher percentage is used for PITI plus installment debt.

Installment debt refers to monthly payments on car loans, student loans, minimum payment on credit cards, child support etc. 

Gross Income X % = PITI (Principal, Interest, Taxes, Insurance)

Gross Income Y % = PITI plus installment debt.

Prior to 1997 Conventional ratios were 28% for PITI and 36% including debt.  FHA was 29% and 41%. 

2. Money – For conventional financing the banks required that the borrower have five percent of the purchase price of their own money available and accountable.  Lenders required a verification of this and the money had to be in the borrower’s account for at least six months.

3. Employment – Lenders required written verification that the borrower was in same profession or line of work for a minimum of two years.

4. Credit – In addition to looking the credit scores the lenders scrutinize the entire report itself.  They wanted explanations of late payments and defaults.  In the past they did not
want to see a borrower with a lot of active but unused credit cards because of the potential for over borrowing after closing.  This level of scrutiny is likely to return. 

For many newer Agents’ who are not familiar with these standards, I suggest you learn and understand them.  Then relay that information to your Buyers.  Prepare them for the higher standards as you prepare them for the entire process especially the lending faze. This is applicable for first time home buyers who have never gone through the process and for buyers that may not have purchased recently and may be familiar with the less then stringent criteria of recent years. Some borrowers are going to be disappointed and take these stricter criteria as an affront as they may have gotten a mortgage or had friends get mortgages in the past and now won’t qualify under these stricter guidelines.

Now is the time, if you haven’t already, to create a strong buyer presentation. Gone are the days of simply showing a Buyer a few houses, writing an offer and closing the deal. You need to put real effort into obtaining buyers, keeping and getting Buyers into their new property. A strong buyer presentation will cause the Buyer to want to work with you because you will give them what they want, guide them, take care of their needs and protect them from dangers that now are especially prevalent.

A strong buyer presentation will prepare the buyer for pitfalls such as; during the Buyer’s approval process the lender may continuously ask for more documentation and verification.  Prepare the Buyer and instead of the Buyer being resentful and resistant when this happens they will be accepting and grateful to you for preparing them. 

Assure Buyers that there is money available at excellent rate and terms as long as the borrower is employed with enough income to keep up the payments, reasonable credit and a little bit of their own assets. 

The Agents that prepare for these changing lending criteria and those who effectively prepare their Buyer’s for it will be more successful.

Rich Levin is a coach and speaker whose focus is teaching Agents to understand and control their business. Through that understanding achieve exceptional happiness and wealth in their life. Take control of your business, register for a 2009 Strategy Session or join our 1st Fifteen Training Webinar every week day morning. Rich is President of Rich Levin’s Success Corps Inc.  Contact him at 585-244-2700 or  

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