There seems to be a thought pattern out there amongst buyers of Palos Verdes homes or homes in other affluent areas such as Manhattan Beach, that the loan process is a simple one; or at least one that can be navigated easily. Unfortunately, I’ve
learned too many times, and yes, often from some of my own clients, that no matter how much I prepare and try to set reasonable expectations for them, they invariably self-sabotage their own interests thinking foolishly that their economic status puts them above the fray.
Fortunately, I have someone like Kent Kirkpatrick of American Capital on my team. Kent is one of the principles of a firm that is the largest mortgage banking company in Los Angeles County. Let’s learn from his experiences and make the process of buying one of the Palos Verdes homes a more efficient one – for your own good. And remember the 21st version of the Golden Rule… The man with the gold MAKES the rules. If you want the lender’s money, you MUST play by their rules! PERIOD!
I am often asked by clients to describe some of the difficulties that we run into as mortgage professionals due to the current lending environment. While there are hundreds of examples of tough issues or problems that come up in transactions these days… I think describing a some of the more challenging deals in detail could be a good way to relay some of the issues that we face…
Last June a client called and wanted to be pre qualified to purchase a townhome which was a short pay ( seller negotiates with bank to pay less than actual loan amount off due to value being below sale price). I explained the difference between being pre qualified and being pre approved ( pre-qualified is a conversation over the phone where the loan professional asks numerous questions regarding the borrower’s finances and then obtains a credit report and then runs qualification tests to ensure that if all the paperwork matches the verbal information, then the borrower will be able to obtain loan approval. Pre Approval is filling out the loan application, forms and submitting them with personal financials ( two years tax returns, 
paystubs, two months bank statements) and then getting an actual credit loan approval from the underwriter). I further explained to the client that in short pay deals, typically the seller must close in less than 30 days from agreement. In order to be able to do this, the borrower should be pre approved due to the amount of time it takes to get a complete loan file together and then approved and then fund.
This client did the pre-qualification upon which I told him that he had very complicated financials and that he needed to get a pre-approval or it would be very difficult to close on time. The client did not follow through. The short pay approval came through in September and the lender wanted to fund in 30 days. We started all the paperwork with the borrower only to find out that there was a small second loan that refused to go along with the short pay until they did more research. So after getting an almost complete file, the borrower stopped submitting* … which we begged him not to do… had he continued to complete the file we could have obtained the pre-approval and been in a great position to close the escrow quickly. On December 15th the final approval came and the parties ( without consulting us) decided on a Dec 30th close date. We told them not possible due to borrower not being ready and the deal almost fell apart. The new close date would be Jan 15th… which we also said would be very difficult due to borrower financial set up and time of year. The borrower then took three weeks to get all the necessary documentation into us. We pulled numerous favors to rush it through the system only to find out the borrower claimed a large loss in one of his corporations that basically wiped out most of his income. After five days of creative underwriting and meetings, we were able to approve the file. The file funded and the deal closed. Had the borrower completed his loan application months back, he would have avoided a tremendous amount of hardship for him and all other parties in the transaction.
The pre-qualification versus per approval can also be a very tough part of what we do. When I talk to a client, one of the first things I do is to talk about these two processes and what they mean, why they are important. Most good listings these days have several, if not more, offers when they come out. The listing agent is going to look to the strongest overall offer… it is not just the price, but also about the closing time and the borrowers’ ability to obtain financing. If they come in with a pre-approval from a strong lender with a good reputation, that can make all the difference in getting the offer accepted. Too many questions are left up in the air with a pre-approval to be confident in today’s environment for most listing agents. Too many times their deal has gone south due to the pre-qualification either not being done correctly by the loan officer or the borrower not giving accurate information to the loan officer. 
We had a transaction just last month where the borrower was buying a four unit investment property. She made an offer using a pre-approval letter from Chase bank. The offer was accepted and the deal went into escrow. Two weeks into the transaction the agent called me to tell me that the lender was not issuing an approval fast enough and they needed my help. I had the borrower get me a complete loan file and we looked through it. The Buyer’s financial profile was made complicated due to her owning multiple properties and the way in which the income was reported. Chase then denied the loan. We met with our head underwriter and were able to approve the file using a freddie mac approval with higher debt to income ratios… it took a week to work through but we got it done and were actually .125% in rate less on a 30 year fixed than what Chase had quoted her.
Another deal we recently worked on was a borrower who was quoted a lower rate at their bank’s private bank division. Three weeks into a 30 day escrow we got a call from the borrower to say that he had mistakenly compared our 30 year fixed quote to their ten year fixed adjustable and he did not want that adjustable loan. They were unable to get him a 30 year fixed rate that was competitive. The problem for us and him was that he needed to close in one week. I explained to the listing agent what had happened and asked for a one week extension which was granted and we closed the file in two total weeks.
The last example ( and again, there are too many to mention here….) is similar to the first in that the borrowers never completed their loan application prior to entering escrow… in this case, the borrowers were making numerous low offers over the course of one year…. They were recently married and both owned their own business. When they finally found the home they had to have they ended up offering more than another borrower due to their qualification being a pre-qual instead of a pre-approval… so when the listing agent said he was thinking of taking the other offer because that buyer had been pre approved… our client had to go up in price for them to take the risk on them… once the offer was accepted the borrower submitted their personal financial documentation and it showed that the husband had three companies with all different lengths of time in business and wildly fluctuating incomes for each one… which was not even close to what we were told during the pre-qualification… a mortgage lending nightmare…. After having to request an amazing amount of documentation and working a tremendous number of hours with our staff in a very short period of time, we were able to obtain loan approval and fund the loan. The borrowers however were exhausted and stressed out… none of which was necessary**
I hope these examples of difficult lending transactions are helpful and that if you are looking to purchase a property you plan ahead and work with the right people in obtaining real estate or mortgage advice.
Some quick suggestions for Palos Verdes homes buyers and lessons to learn for sellers ~
*Many buyers of homes in affluent areas such as that for Palos Verdes homes believe their strong financial profiles exempt them from the microscopic, intrusive, and repeated reviews by lenders; quite the contrary, for the financial complicates of high net worth individuals, the under writing process can be even more grueling. Put on your big boy pants clients; swallow your pride and just keep your eye on the prize – closing escrow on the house you want. Remember, you want the lender’s money, comply with what they request of you.
**The more information you can provide your mortgage banker UP FRONT the better off you are. Yes, it’s a pain. Yes, it’s a hassle. But not doing it will only cause more pain later. A good guideline on the information you will need to provide can be found here.
It’s certainly not my goal here to offend buyers of Palos Verdes homes. My intent is to inform and make the process as easy as possible, as stress free as possible. If you believe, like I do, to front load difficult processes so that you have time to adjust without the stress of a “tomorrow” deadline, we can work well together. Ignoring the lessons that Kent writes about above, only makes the entire Palos Verdes homes buying process a needless hyperstressful situation that could have easily been avoided.
For more information on searching for Palos Verdes homes use the map function below. And if you’re looking to find the value of various Palos Verdes homes, visit my home page and roll your mouse over the “What’s My Home Worth”. While the computer algorithms there can not replace a Realtor’s “eyes on” analysis, they can certainly give you a frame work.
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